Invesco Mortgage Capital Inc.
For the period ended Mar 31, 2025. Filed May 7, 2025.
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.
Mar 31, 2025 · Filed May 7, 2025
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 2024-09-30; filed 2024-11-05.
0001437071-24-000037
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-07.
0001437071-25-000017
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 186 previous paragraphs and 172 current paragraphs.
92 unchanged; 70 reworded; 9 added; 21 removed; 3 previous and 1 current paragraphs rearranged.
Tables are not compared: 33 previous and 28 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 (9)
Current report
Financial conditions tightened during the first quarter, shifting from a largely accommodative position to more balanced as equity markets, credit spreads and volatility measures all reacted negatively to the potential impacts of significant changes to U.S. fiscal and trade policies. Equity markets repriced lower during the first quarter, with the S&P 500 declining 4.6% while the NASDAQ fell 10.4%. The CBOE SPX Volatility Index (“VIX”) reflected the uncertainty brought on by these policy changes, increasing by over 28% during the quarter. Credit spreads reacted similarly, with investment grade credit, high yield and emerging markets spreads all materially wider.
Current report
Even as inflation expectations were increasing, softer employment data and fears that the combination of potential trade wars and fiscal austerity would contribute to an economic slowdown led to a re-pricing of the market’s expectations of future monetary policy. Federal Funds futures market expectations as of March 31, 2025 reflected a further 75 basis point reduction of the target rate through the end of the year. Quantitative tightening continued in the first quarter of 2025, as the Federal Reserve passively reduced the size of its balance sheet through maturities of U.S. Treasuries and paydowns of Agency RMBS. At their March meeting, the Federal Reserve announced that they would begin slowing the pace of quantitative tightening by lowering the cap on the amount of Treasuries allowed to mature per month without being reinvested to $5 billion from $25 billion, while leaving the cap on mortgage-backed securities unchanged at $35 billion per month.
Current report
Against this macroeconomic backdrop, Agency RMBS performance was relatively consistent with Treasuries during the first quarter, with higher coupons modestly outperforming. Supply and demand technicals for higher coupon Agency RMBS were supportive as originations remained subdued given slower housing seasonals and elevated mortgage rates, while banks, money managers and mortgage REITs net added exposure during the quarter. Prepayment speeds remained at low levels given limited purchase and refinancing activity. However, a notable decline in mortgage rates in the latter half of the quarter should result in faster prepayment speeds in the coming months, as the decline coincided with the seasonal increase in housing activity. Premiums on specified pool collateral were largely unchanged during the quarter as the move lower in mortgage rates led to support for prepayment protection. Additionally, Agency CMBS risk premiums increased during the first quarter, reflecting weakness in broader fixed income markets.
Current report
Recently proposed changes to U.S. fiscal and trade policy have negatively impacted financial markets and could result in slower economic growth, higher inflation and further market volatility. As such, we remain cautious on the near-term outlook for Agency RMBS. However, our long-term outlook for Agency RMBS is favorable, 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, while Agency CMBS risk premiums may remain elevated until sentiment in the broader fixed income market improves, limited issuance, strong fundamental performance and stable cash flow profiles should provide favorable support for this sector.
Current report
Our interest income increased for the three months ended March 31, 2025 compared to the same period in 2024 due to an increase in average earning assets.
Current report
Net discount accretion decreased for three months ended March 31, 2025 compared to the same period in 2024 as we have repositioned a portion of our investment portfolio into higher coupon securities that have higher amortized costs relative to principal value.
Current report
Our interest expense decreased for the three months ended March 31, 2025 compared to the same period in 2024 due to a lower cost of funds, which was partially offset by an increase in average borrowings.
Current report
Our effective interest expense increased in the three months ended March 31, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps and higher average borrowings, which were partially offset by a lower Federal Funds target rate.
Current report
Our interest rate swaps and futures contracts require us to post initial margin and daily variation margin based on subsequent changes in their fair value. Daily variation margin requirements also entitle us to receive collateral from our counterparties if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement.
Removed paragraphs (21)
Previous report
Cooling inflation and softer employment data prior to the release of September payrolls led to a re-pricing of the market’s expectations of future monetary policy. Following the Federal Open Market Committee’s (“FOMC”) 50 basis point reduction of the Federal Funds target rate in September. In addition, Federal Funds futures market expectations as of September 30, 2024 reflected a further 175 to 200 basis point reduction of the target rate through the end of 2025. Quantitative tightening continued in the third 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 $17 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 report
Against this macroeconomic backdrop, Agency RMBS outperformed Treasuries during the third quarter. Lower interest rate volatility increased demand for Agency RMBS, with lower coupons performing better than higher coupons as the sharp decline in interest rates impacted coupons trading at a premium to par. Prepayment speeds remained at very low levels given limited housing activity and elevated mortgage rates. Premiums on higher coupon specified pool collateral increased modestly given the decrease in interest rates. Implied financing via the dollar roll market for TBA investments remained relatively unattractive throughout the quarter. Agency CMBS risk premiums moved modestly wider.
Previous report
The recent disinflationary trend in economic data suggests that the Federal Reserve may continue to ease monetary policy in the coming months as the need for restrictive monetary policy declines. This easing should lead to a steeper yield curve and lower interest rate volatility, creating a favorable environment for Agency RMBS investments. However, if the disinflationary trend reverses and the labor market and economic growth improve, expectations for monetary policy could shift, posing a near-term risk. Additionally, short-term funding pressures into year end could reduce investor interest in the sector. Despite these near-term risks, we are constructive on the sector, as Agency mortgage performance stands to benefit from normalization of monetary policy given attractive valuations and supportive supply and demand technicals. We also remain constructive on Agency CMBS, as we expect a gradual increase in new issuance to be met with adequate investor demand, as the sector offers value relative to other fixed income investments, given its attractive prepayment protection and return profiles.
Previous report
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.
Previous report
On November 5, 2024, we announced our intention to redeem all outstanding shares of our Series B Preferred Stock on December 27, 2024 for a cash redemption price of $25.00 per share, plus accrued and unpaid dividends. The redemption of the Series B Preferred Stock will help optimize our capital structure and reduce our dividend obligations moving forward.
Previous report
Our interest income was relatively flat for the three months ended September 30, 2024 compared to the same period in 2023 as a decrease in average earning asset yields was largely offset by an increase in average earning assets. Our interest income decreased $5.4 million for the nine months ended September 30, 2024 compared to the same period in 2023 as a decrease in average earning assets was partially offset by an increase in average earning asset yields.
Previous report
Net discount accretion decreased for three months ended September 30, 2024 compared to the same period in 2023 as our portfolio was repositioned into securities with higher book prices. Net discount accretion was relatively flat for nine months ended September 30, 2024 compared to the same period in 2023 as higher discount accretion in the earlier part of 2024 was offset by our portfolio repositioning into securities with higher book prices.
Previous report
Our interest expense was relatively flat for the three months ended September 30, 2024 compared to the same period in 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 $12.8 million for the nine months ended September 30, 2024 compared to the same period in 2023 due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in borrowing rates that more than offset decreases in our average borrowings.
Previous report
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.
Previous report
Our net interest income, which equals total interest income less total interest expense, totaled $7.5 million and $23.1 million for the three and nine months ended September 30, 2024, respectively (September 30, 2023: $9.4 million and $41.4 million). The decrease in net interest income for the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to lower average earning asset yields, which was partially offset by higher average earning assets. The decrease in net interest income for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in the Federal Funds target rate, which were partially offset by lower average borrowings.
Previous report
Other Investment Income (Loss), net
Previous report
Our other investment income (loss), net during the nine months ended September 30, 2023 consisted of foreign currency transaction gains and losses and the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.
Previous report
(3)Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the condensed consolidated statements of operations.
Previous report
(1)Investments in non-Agency CMBS and non-Agency RMBS are included in credit portfolio.
Previous report
(2)Cash and cash equivalents is allocated based on our financing strategy for each asset class.
Previous report
(3)Restricted cash and derivative assets are allocated based on our hedging strategy for each asset class.
Previous report
(1)Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.
Previous report
(2)Cash and cash equivalents is allocated based on our financing strategy for each asset class.
Previous report
(3)Restricted cash and derivative assets are allocated based on our hedging strategy for each asset class.
Previous report
(5)Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders' equity. We did not have any TBAs outstanding as of December 31, 2023.
Previous report
(September 30, 2023: $752.2 million). We used cash of $75.7 million for the nine months ended September 30, 2024 to pay dividends (September 30, 2023: $77.1 million). Proceeds from issuance of common stock provided $108.1 million for the nine months ended September 30, 2024 (September 30, 2023: $109.1 million).
Reworded paragraphs (70)
Previous wording
We make forward-looking statements in this Quarterly Report and other filings we make with the SEC within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the mortgage-backed securities, residential and commercial real estate markets). When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “project,” “forecast” or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words.
Current wording
We make forward-looking statements in this Quarterly Report and other filings we make with the SEC within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the Agency RMBS, Agency CMBS and residential and commercial real estate markets). When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “project,” “forecast” or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words.
Previous wording
•commercial mortgage-backed securities ("CMBS") that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively “Agency CMBS”);
Current wording
•commercial mortgage-backed securities (“CMBS”) that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively “Agency CMBS”); and
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
•other real estate-related financing arrangements in the form of unconsolidated ventures.
Current wording
•a real estate-related financing arrangement in the form of an unconsolidated venture.
Previous wording
Macroeconomic factors that affect our business include inflation, economic growth, employment conditions, interest rates, interest rate volatility, fiscal and monetary policy, financial conditions, spread premiums, residential and commercial real estate prices, credit availability, the health of the banking system, consumer personal income and spending and corporate earnings. Of these macroeconomic factors, inflation, employment conditions, monetary policy, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the third quarter of 2024.
Current wording
Macroeconomic factors that affect our business include inflation, economic growth, employment conditions, interest rates, interest rate volatility, fiscal and monetary policy, public policy, financial conditions, spread premiums, residential and commercial real estate prices, credit availability, the health of the banking system, consumer personal income and spending and corporate earnings. Of these macroeconomic factors, financial conditions, inflation, employment conditions, monetary policy, public policy, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the first quarter of 2025.
Previous wording
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 2.4%, down from June’s 3.0%, while CPI (ex. food and energy) remained flat at 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 1.77% (down from 2.11% at the end of June) and the five-year breakeven ended at 2.09% (down from 2.28%). Meanwhile, employment data released during the quarter reflected a slowing labor market, as the economy added an average of 152 thousand jobs during July and August. Following the end of the quarter, the Bureau of Labor Statistics announced the nonfarm payrolls changed to 254 thousand in September.
Current wording
While inflation readings trended lower during the quarter, they remained above the Federal Reserve’s 2% inflation target. The headline consumer price index (“CPI”) ended the quarter 2.4% higher on a year-over-year basis, down from a rate of 2.9% at year end, while the year-over-year change in CPI (excluding food and energy) fell to 2.8% from 3.2%. Despite the improvement in CPI reports, investors increased expectations for future inflation given concerns about the potential impact of shifting trade policy. Treasury inflation-protected securities breakeven rates increased during the quarter, with the two-year breakeven ending the quarter at 3.3% (up from 2.5% at year-end) and the five-year breakeven ending at 2.6% (up from 2.4%). Meanwhile, employment data released during the quarter reflected a slowing labor market, as the economy added an average of 152,000 jobs per month during the first quarter after adding an average of 209,000 jobs during the fourth quarter.
Previous wording
Interest rates dropped sharply across the maturity spectrum, as investors reacted to potentially slower economic activity signaled by a weakening labor market. The yield on the two-year Treasury decreased 107 basis points to 3.65%, the yield on the five-year Treasury decreased 75 basis points to 3.58% and the yield on the ten-year Treasury finished at 3.80%, down 54 basis points on the quarter. Interest rate volatility increased through August before declining in the wake of the FOMC’s decision to begin easing monetary policy at their September meeting.
Current wording
Interest rates dropped across the maturity spectrum during the first quarter. The yield on the two-year Treasury decreased 34 basis points to 3.91%, the yield on the five-year Treasury decreased 41 basis points to 3.98% and the yield on the ten-year Treasury decreased 34 basis points to 4.24%. Short-dated interest rate volatility increased over the quarter, reflecting the market’s shifting expectations of monetary and trade policy, while longer-dated volatility declined modestly.
Previous wording
As of September 30, 2024, our holdings of 30 year fixed-rate Agency RMBS represented approximately 87% of our total investment portfolio versus 98% as of December 31, 2023 and September 30, 2023. Our 30 year fixed-rate Agency RMBS holdings as of September 30, 2024, December 31, 2023 and September 30, 2023 consisted of specified pools with coupon distributions as shown in the table below.
Current wording
As of March 31, 2025, our holdings of 30 year fixed-rate Agency RMBS represented approximately 84% of our total investment portfolio versus 83% as of December 31, 2024 and 93% as of March 31, 2024. Our 30 year fixed-rate Agency RMBS holdings as of March 31, 2025, December 31, 2024 and March 31, 2024 consisted of specified pools with coupon distributions as shown in the table below.
Previous 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 September 30, 2024, our holdings of Agency CMBS represented approximately 11% of our total investment portfolio, and approximately 74% of our Agency CMBS were Fannie Mae DUS and 26% were Freddie Mac Multifamily Participation Certificates.
Current wording
As of March 31, 2025, our holdings of Agency CMBS represented approximately 15% of our total investment portfolio versus 15% as of December 31, 2024 and 5% as of March 31, 2024. Our Agency CMBS 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 March 31, 2025, approximately 81% of our Agency CMBS were Fannie Mae DUS and 19% were Freddie Mac Multifamily Participation Certificates.
Previous wording
As of September 30, 2024, December 31, 2023 and September 30, 2023, our holdings of non-Agency CMBS and non-Agency RMBS represented less than 1% of our total investment portfolio. Approximately 68% of our non-Agency securities were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of September 30, 2024.
Current wording
As of March 31, 2025, December 31, 2024 and March 31, 2024, our holdings of non-Agency securities represented less than 1% of our total investment portfolio. In the first quarter of 2025, we sold our remaining non-Agency CMBS investment.
Previous wording
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 also used 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.
Current wording
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.
Previous wording
We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes. During the nine months ended September 30, 2024, we entered into interest rate swaps with a notional amount of $2.6 billion and terminated existing interest rate swaps with a notional amount of $2.9 billion.
Current 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, 2025, we entered into interest rate swaps with a notional amount of $725.0 million and terminated existing interest rate swaps with a notional amount of $350.0 million.
Previous wording
During the third quarter of 2024, we began entering into futures contracts comprised of short positions in Ultra 10 year U.S. Treasury Notes as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the quarter, we entered into futures contracts with a notional amount of $750.0 million and terminated existing futures contracts with a notional amount of $260.0 million.
Current wording
We also use futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the three months ended March 31, 2025, we entered into futures contracts with a notional amount of $1.4 billion and terminated existing futures contracts with a notional amount of $1.9 billion.
Previous wording
As of September 30, 2024, we had 12,089,398 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 sales of our common stock under equity distribution agreements during the three and nine months ended September 30, 2024 and 2023.
Current wording
As of March 31, 2025, we had 6,883,504 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 sales of our common stock under equity distribution agreements during the three months ended March 31, 2025 and 2024.
Previous wording
For information on dividends declared during the nine months ended September 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.
Current wording
For information on dividends declared during the three months ended March 31, 2025 and 2024, see Note 10 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I. Item 1 of this report on Form 10-Q.
Previous wording
During the nine months ended September 30, 2024, we did not repurchase any shares of our common stock.
Current wording
During the three months ended March 31, 2025, we did not repurchase any shares of our common stock.
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 and nine months ended September 30, 2024, we repurchased and retired no shares and 138,008 shares of Series B Preferred Stock, respectively, and 66,507 and 267,916 shares of Series C Preferred Stock, respectively. During the three and nine months ended September 30, 2023, we repurchased and retired 34,432 and 72,220 shares of Series B Preferred Stock, respectively, and 92,563 and 135,259 shares of Series C Preferred Stock, respectively. As of September 30, 2024, we had authority to repurchase 1,047,989 additional shares of our Series B Preferred Stock and 777,523 additional shares of our Series C Preferred Stock under the current preferred stock 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 months ended March 31, 2025, we repurchased and retired 90,146 shares of 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. We redeemed all outstanding shares of our Series B Preferred Stock in December 2024. As of March 31, 2025, we had authority to repurchase 616,513 additional shares of our Series C Preferred Stock under the current preferred stock share repurchase program.
Previous wording
Our book value per common share decreased 6.3% as of September 30, 2024 compared to December 31, 2023. The decrease in our book value per common share occurred during the first half of 2024 as Agency RMBS modestly underperformed interest rate swaps. Our book value per common share rebounded slightly during the third quarter of 2024 as interest rates declined sharply and Agency RMBS outperformed interest rate swaps. 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 1.2% as of March 31, 2025 compared to December 31, 2024. The decrease in our book value per common share was primarily due to losses on derivative instruments, dividends declared and expenses, which were partially offset by net interest income and gains on investments. 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 and nine months ended September 30, 2024 and 2023.
Current wording
The table below presents information from our condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024.
Previous wording
The table below presents information related to our average earning assets and earning asset yields for the three and nine months ended September 30, 2024 and 2023.
Current wording
The table below presents information related to our average earning assets and earning asset yields for the three months ended March 31, 2025 and 2024.
Previous wording
Total average earning assets increased $68.0 million and decreased $213.9 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively. Changes in our average earning assets are a factor of our total stockholders' equity and our desired leverage levels.
Current wording
Total average earning assets increased $450.3 million for the three months ended March 31, 2025 compared to the same period in 2024. Changes in our average earning assets are a factor of our total stockholders' equity and our desired leverage levels.
Previous wording
Average earning asset yields decreased 16 basis points and increased 8 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively. Changes in our average earning assets yields are driven by our coupon allocation to Agency RMBS and the book prices of our securities.
Current wording
Average earning asset yields decreased 7 basis points for the three months ended March 31, 2025 compared to the same period in 2024. Changes in our average earning asset yields are driven by the composition of our investments, amortized cost of our securities and prepayment rates.
Previous wording
We earned total interest income of $73.8 million and $210.4 million for the three and nine months ended September 30, 2024, respectively (September 30, 2023: $75.1 million and $215.8 million). Our interest income includes coupon interest and net (premium amortization) discount accretion as shown in the table below.
Current wording
Our interest income includes coupon interest and net (premium amortization) discount accretion as shown in the table below.
Previous wording
Our RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income. 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 those securities on which we do estimate prepayments, expected future prepayment speeds are estimated on 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.
Current wording
Our RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income. 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 those securities on which we do estimate prepayments, 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.
Previous wording
The following table presents net (premium amortization) discount accretion recognized for the three and nine months ended September 30, 2024 and 2023.
Current wording
The following table presents net (premium amortization) discount accretion recognized for the three months ended March 31, 2025 and 2024.
Previous wording
The table below presents information related to our borrowings and cost of funds for the three and nine months ended September 30, 2024 and 2023.
Current wording
The table below presents information related to our borrowings and cost of funds for the three months ended March 31, 2025 and 2024.
Previous wording
(3)Average cost of funds is calculated by dividing annualized interest expense including amortization of net deferred gain (loss) on de-designated interest rate swaps by our average borrowings.
Current wording
(3)Average cost of funds is calculated by dividing annualized interest expense by our average borrowings.
Previous wording
Total average borrowings increased $102.1 million and decreased $250.8 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively. Changes in our average borrowings are a factor of our total stockholders' equity and our desired leverage levels.
Current wording
Total average borrowings increased $510.5 million for the three months ended March 31, 2025 compared to the same period in 2024. Changes in our average borrowings are a factor of our total stockholders' equity and our desired leverage levels.
Previous wording
Our average cost of funds decreased 6 basis points and increased 65 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively. Changes in our costs of funds are substantially driven by the Federal Funds target rate, which the FOMC raised from a range of 4.25% to 4.50% as of January 1, 2023 to a maximum of 5.25% to 5.50%, before lowering the target rate to 4.75% to 5.00% in September 2024. Our cost of funds for the three and nine months ended September 30, 2024 was also significantly impacted by a decrease in amortization of net deferred gains on de-designated interest rate swaps. The amortization of these gains ended in December 2023.
Current wording
Our average cost of funds decreased 111 basis points for the three months ended March 31, 2025 compared to the same period in 2024. Changes in our costs of funds are substantially driven by the Federal Funds target rate, which the FOMC lowered from a range of 5.25% to 5.50% as of January 1, 2024 to 4.25% to 4.50% as of March 31, 2025.
Previous wording
The table below presents the components of interest expense for the three and nine months ended September 30, 2024 and 2023.
Current wording
The table below presents the components of interest expense for the three months ended March 31, 2025 and 2024.
Previous wording
The table below presents the components of net interest income for the three and nine months ended September 30, 2024 and 2023.
Current wording
The table below presents the components of net interest income for the three months ended March 31, 2025 and 2024.
Previous 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 months ended September 30, 2024 compared the same period in 2023 due to decreases in average earning asset yields. Our net interest rate margin decreased in the nine months ended September 30, 2024 due to increases in the Federal Funds target rate and decreases in amortization of net deferred gains on de-designated interest rate swaps. 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 income, which equals total interest income less total interest expense, and 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 months ended March 31, 2025 compared to the same period in 2024 due to a lower cost of funds. 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 and nine months ended September 30, 2024 and 2023.
Current wording
The table below summarizes the components of gain (loss) on investments, net for the three months ended March 31, 2025 and 2024.
Previous wording
During the three and nine months ended September 30, 2024, we sold MBS and realized net gains of $5.0 million and net losses of $4.8 million, respectively (September 30, 2023: net losses of $33.2 million and $57.4 million). Net realized gains and losses during the three and nine months ended September 30, 2024 primarily reflect sales of 4.0% to 5.0% coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS. Net realized losses during the three and nine months ended September 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.
Current wording
During the three months ended March 31, 2025, we sold MBS and realized net losses of $5.5 million (March 31, 2024: $3.2 million). Net realized losses during the three months ended March 31, 2025 reflect sales of 4.0% coupon Agency RMBS. 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.
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 September 30, 2024, $5.9 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.
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 March 31, 2025, $5.9 billion (December 31, 2024: $5.4 billion) or 99.9% (December 31, 2024: 99.7%) of our MBS were accounted for under the fair value option.
Previous wording
We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $160.2 million and $59.0 million in the three and nine months ended September 30, 2024 compared to net unrealized losses of $191.8 million and $215.2 million in the three and nine months ended September 30, 2023. Net unrealized gains in the three and nine months ended September 30, 2024 were due to lower interest rates during the third quarter resulting in improved valuations on Agency RMBS and Agency CMBS. Net unrealized losses in the three and nine months ended September 30, 2023 were primarily due to lower valuations on our Agency RMBS given higher interest rates and wider interest rate spreads on our holdings.
Current wording
We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $87.6 million in the three months ended March 31, 2025 compared to net unrealized losses of $62.5 million in the three months ended March 31, 2024. Net unrealized gains in the three months ended March 31, 2025 resulted from a sharp decline in interest rates during the quarter, as valuations on fixed-rate securities increased as interest rates fell. 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.
Previous wording
We recorded net realized and unrealized losses of $458,000 on U.S. Treasury securities in the nine months ended September 30, 2024. We sold the security during the first quarter of 2024.
Current 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, 2025.
Previous wording
As of September 30, 2024, $15.4 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 nine months ended September 30, 2024, we recorded a decrease of $80,000 and an increase of $222,000 in the provision for credit losses, respectively, on a single non-Agency CMBS. We recorded a $43,000 and $212,000 increase in the provision for credit losses during the three and nine months ended September 30, 2023, respectively, on the same security. Increases and decreases in the provision are based on a comparison of the security's amortized cost basis to discounted expected cash flows.
Current wording
As of March 31, 2025, $5.1 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2024: $15.0 million). During the three months ended March 31, 2025, we sold the only security for which we had recorded an allowance for credit losses. We recorded a $39,000 increase in the provision for credit losses during the three months ended March 31, 2024 on the same security based on a comparison of the security's amortized cost basis to discounted expected cash flows.
Previous wording
For the nine months ended September 30, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (three and nine months ended September 30, 2023: equity in earnings of $2,000 and $4,000, respectively). 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 three months ended March 31, 2024, we recorded equity in losses of $193,000. 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 nine months ended September 30, 2024, we entered into interest rate swaps with a notional amount of $2.6 billion and terminated existing interest rate swaps with a notional amount of $2.9 billion. We recorded net losses of $119.1 million and net gains of $3.3 million on interest rate swaps for the three and nine months ended September 30, 2024, respectively, (September 30, 2023: net gains of $151.7 million and $203.9 million) primarily due to changes in forward interest rate expectations.
Current wording
During the three months ended March 31, 2025, we entered into interest rate swaps with a notional amount of $725.0 million and terminated existing interest rate swaps with a notional amount of $350.0 million. We recorded net losses of $47.6 million on interest rate swaps for the three months ended March 31, 2025 (March 31, 2024: net gains of $93.2 million) primarily due to changes in interest rate expectations.
Showing the first 40 of 70 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
As of March 31, 2025 and December 31, 2024, we held the following futures contracts.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
For the nine months ended September 30, 2024, our net income attributable to common stockholders was $40.2 million (September 30, 2023: net loss of $59.8 million) or $0.78 basic and diluted net income per average share available to common stockholders (September 30, 2023: $1.40 net loss per share). The change in net income (loss) attributable to common stockholders was primarily due to (i) net gains on investments of $53.8 million in the 2024 period compared to net losses on investments of $272.6 million in the 2023 period; (ii) net losses on derivative instruments of $5.9 million in the 2024 period compared to net gains on derivative instruments of $203.4 million in the 2023 period; and (iii) a $18.3 million decrease in net interest income.
Previous report — wording carried elsewhere
(4)U.S. GAAP interest expense on the condensed consolidated statements of operations includes the following components.
Previous report — wording carried elsewhere
(4)Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.