Invesco Mortgage Capital Inc.
For the period ended Sep 30, 2025. Filed Nov 5, 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.
Sep 30, 2025 · Filed Nov 5, 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 2025-06-30; filed 2025-08-08.
0001437071-25-000031
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-09-30; filed 2025-11-05.
0001437071-25-000051
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 176 previous paragraphs and 175 current paragraphs.
111 unchanged; 57 reworded; 7 added; 7 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 32 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
Financial conditions remained accommodative during the third quarter as volatility measures declined sharply and equity markets performed well, with the S&P 500 Index and the NASDAQ posting gains of 8.1% and 11.4%, respectively. Credit markets ended the quarter largely unchanged, with investment-grade and high-yield corporate bond spreads widening slightly, while emerging market debt spreads tightened modestly.
Current report
Interest rates declined across the Treasury yield curve during the third quarter, reflecting market expectations for a more accommodative policy stance from the Federal Reserve and continued weakness in the labor market. The yield on the two-year Treasury fell 12 basis points to 3.60%, the five-year yield declined 6 basis points to 3.73% and the ten-year yield decreased by 8 basis points to 4.15%. Interest rate volatility declined notably throughout the quarter, as the market coalesced around expectations for two additional rate cuts by the Federal Reserve before year end.
Current report
Agency RMBS performed well during the third quarter, benefiting from the persistent decline in interest rate volatility as well as the overall supportive environment for risk assets. While demand from commercial banks and overseas investors remained relatively subdued during the quarter, the steepening of the yield curve in the front end, aided by expectations for additional monetary policy easing in the coming months, improved investor sentiment for Agency RMBS as money managers and mortgage REITs deployed inflows into the sector. The outperformance was broadly distributed across the 30-year conventional mortgage coupon stack, with discount coupons recording the largest gains. Coupons ranging from 2.0% to 5.0% outperformed their Treasury hedges by 90 to 130 basis points, while 5.5% to 6.5% coupons posted more modest excess returns relative to Treasuries of 30 to 80 basis points. Performance in higher coupons was dampened by elevated prepayment risk, as 30-year mortgage rates declined approximately 0.5% during the quarter.
Current report
Prepayment speeds increased marginally during the quarter as the seasonal decline in housing turnover was offset by a notable increase in refinancing activity, which is expected to persist in higher coupons over the next few months. Positively, premiums on specified pool collateral improved in higher coupons during the quarter as investors sought prepayment protection. Agency CMBS risk premiums continued to decline with broader financial markets.
Current report
Given the notable decline in interest rate volatility, we remain constructive on Agency RMBS, though we view near term risks as balanced following its recent strong performance. Our longer-term outlook for the sector remains favorable, as we expect investor demand to broaden given lower interest rate volatility, a steeper yield curve and attractive valuations. In addition, Agency CMBS continues to offer attractive risk-adjusted yields and diversification benefits relative to our Agency RMBS holdings, supported by its stable cash flow profile and lower sensitivity to interest rate fluctuations. Lastly, we believe anticipated changes to bank regulatory capital rules would increase demand for Agency RMBS and Agency CMBS, providing further support for both sectors.
Current report
Our effective interest expense increased slightly in the three months ended September 30, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps, which was largely offset by a lower average cost of funds and a decrease in average borrowings. Our effective interest expense increased in the nine months ended September 30, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps and an increase in average borrowings, which was partially offset by a lower average cost of funds.
Current report
Our effective net interest income decreased in the three months ended September 30, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps, which was partially offset by a lower average cost of funds and an increase in average earning asset yields. Our effective net interest income decreased in the nine months ended September 30, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps, which was partially offset by a lower average cost of funds.
Removed paragraphs (7)
Previous report
Financial conditions were quite volatile during the second quarter. They tightened sharply in the first week of April following the initial tariff announcements on April 2 nd, which triggered a broad repricing across risk markets. Despite the early turbulence, financial conditions ended the quarter modestly accommodative, supported by the subsequent delay in tariff implementation. Equity markets, which experienced declines of over 10% in the immediate aftermath of April 2 nd, rebounded strongly. The S&P 500 finished the quarter up 10.6%, while the NASDAQ posted a gain of 17.7%. Credit markets followed a similar trajectory, with spreads in investment grade, high yield and emerging market debt all widening materially in early April before tightening by quarter end.
Previous report
Interest rates declined across the front end of the Treasury yield curve during the second quarter, while long-end rates moved higher. This reflected market expectations for more accommodative policy from the FOMC, alongside concerns about a potential increase in Treasury issuance over the coming years. The yield on the two-year Treasury fell 19 basis points to 3.72%, the five-year Treasury yield declined 19 basis points to 3.79% and the yield on the ten-year Treasury decreased 1 basis point to 4.23%. In contrast, the yield on the 30-year Treasury increased 16 basis points to 4.77%. Interest rate volatility spiked in early April as the market digested the potential impact of the April 2 nd tariff announcements but quickly subsided. By quarter end, both long and short-dated volatility had declined.
Previous report
As a result of the spike in interest rate volatility and broad selloff in risk assets, Agency RMBS sharply underperformed Treasuries in early April. However, the 90-day pause in tariff implementation announced on April 9 th provided support for financial markets, benefiting the Agency MBS sector. Performance was relatively consistent across the 30-year conventional coupon stack, with coupons ranging from 2.5% to 6.5%, outperforming their Treasury hedges by 20 to 30 basis points. Supply and demand technicals for higher coupon Agency RMBS were supportive despite muted demand from banks and overseas investors. A modest seasonal uptick in origination activity was more than offset by strong inflows into fixed income funds, with money managers allocating a significant portion of these flows to the sector given its attractive relative value. Prepayment speeds increased during the quarter due to the combination of higher refinancing activity related to the decline in mortgage rates earlier in the year and the seasonal increase in housing turnover. However, premiums on specified pool collateral were largely unchanged during the quarter with mortgage rates relatively stable since March. Agency CMBS risk premiums increased with broader financial markets during April before improving in May and June.
Previous report
We remain cautious on the near-term outlook for Agency RMBS, reflecting our belief that elevated near-term uncertainty regarding trade, fiscal and monetary policy warrants a modestly more defensive posture. However, our long-term outlook for Agency RMBS is favorable, as we expect demand to improve in higher coupons given attractive valuations, continued stabilization in interest rate volatility and a steeper yield curve. Lastly, we remain positive on Agency CMBS as limited issuance, strong fundamental performance and stable cash flow profiles should provide favorable support for this sector.
Previous report
(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 report
As of June 30, 2025, we had $4.6 billion of repurchase agreement borrowings with a weighted average remaining maturity of 24 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 report
Our effective interest expense increased in the three and six months ended June 30, 2025 compared to the same periods 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.
Reworded paragraphs (57)
Previous wording
The following discussion should be read in conjunction with our condensed consolidated financial statements and the accompanying notes to our condensed consolidated financial statements, which are included in Item 1 of this Quarterly Report, as well as the information contained in our most recent Form 10-K filed with the Securities and Exchange Commission (the “SEC”).
Current wording
The following discussion should be read in conjunction with our condensed consolidated financial statements and the accompanying notes to our condensed consolidated financial statements, which are included in Item 1 of this Quarterly Report, as well as the information contained in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).
Previous 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 second quarter of 2025.
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 spending, personal income and corporate earnings. Of these macroeconomic factors, financial conditions, inflation, employment conditions, monetary policy, interest rates and interest rate volatility had the most direct impact on our performance and financial condition during the third quarter of 2025.
Previous wording
Inflation remained relatively stable during the quarter, though it continued to exceed the Federal Reserve’s 2% target. The headline consumer price index (“CPI”) rose to 2.7%, up from 2.4% at the end of March. Core CPI, which excludes food and energy, increased modestly to 2.9% year-over-year, compared to 2.8% previously. Despite these increases, investor expectations for future inflation declined, reflecting concerns about the potential impact of fiscal and trade policies on long-term economic growth. Breakeven rates on Treasury inflation-protected securities moved lower during the quarter. The two-year breakeven fell to 2.5% from 3.3%, while the five-year breakeven declined to 2.3% from 2.6%. Meanwhile, labor market data pointed to continued stability. After revisions, the economy added an average of 64,000 jobs per month during the second quarter, down from an average of 111,000 jobs in the first quarter. The headline unemployment rate decreased slightly during the second quarter, dropping to 4.1% from 4.2%.
Current wording
Inflation continued to exceed the Federal Reserve’s 2% target over the quarter, with the headline consumer price index (“CPI”) rising 2.9% year-over-year in August, up from 2.7% at the end of June, and core CPI, which excludes food and energy, increased by 3.1% year-over-year, compared to 2.9% previously. Investor expectations for future inflation increased modestly, reflecting concerns about the potential impact of fiscal and trade policies on consumer prices. Breakeven rates on Treasury inflation-protected securities moved higher during the quarter, with the two-year breakeven rising to 2.6% from 2.5%, and the five-year breakeven increasing to 2.5% from 2.3%. Meanwhile, labor market data pointed to continued sluggish growth. The economy added an average of 51,000 jobs in July and August (with September data delayed due to the government shutdown), down slightly from the second quarter average of 55,000. The headline unemployment rate increased slightly, moving from 4.1% in June to 4.3% in August.
Previous wording
Prior to the revisions to the employment data, stable employment data and declining recession risks led to a moderation in market expectations for near-term monetary policy action. Federal Funds futures market expectations at the end of June 2025 reflected expectations for an additional 50 to 75 basis points of rate cuts by year end, down from 100 basis points at the end of April. Quantitative tightening continued at a slower pace in the second quarter, as the Federal Reserve reduced the monthly runoff of U.S. Treasuries on its balance sheet to $5 billion, down from $25 billion, while maintaining the $35 billion cap on Agency MBS runoff.
Current wording
Despite inflation levels consistently above the Federal Reserve’s 2% target, the Federal Open Market Committee (“FOMC”) lowered its benchmark Federal Funds target rate by 25 basis points in mid-September, citing signs of a weaker labor market. As of the end of September, Federal Funds futures reflected expectations for an additional 50 basis points of rate cuts by year end. Quantitative tightening continued through the third quarter, with the Federal Reserve maintaining its monthly runoff of U.S. Treasuries at $5 billion, while maintaining the $35 billion cap on Agency MBS runoff.
Previous wording
As of June 30, 2025, our holdings of 30 year fixed-rate Agency RMBS represented approximately 81% of our total investment portfolio versus 83% as of December 31, 2024 and 87% as of June 30, 2024. Our 30 year fixed-rate Agency RMBS holdings as of June 30, 2025, December 31, 2024 and June 30, 2024 consisted of specified pools with coupon distributions as shown in the table below.
Current wording
As of September 30, 2025, our holdings of 30 year fixed-rate Agency RMBS represented approximately 83% of our total investment portfolio compared to 83% as of December 31, 2024 and 87% as of September 30, 2024. Our 30 year fixed-rate Agency RMBS holdings as of September 30, 2025, December 31, 2024 and September 30, 2024 consisted of specified pools with coupon distributions as shown in the table below.
Previous wording
As of June 30, 2025, our holdings of Agency CMBS represented approximately 17% of our total investment portfolio versus 15% as of December 31, 2024 and 8% as of June 30, 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 June 30, 2025, approximately 81% of our Agency CMBS were Fannie Mae DUS and 19% were Freddie Mac Multifamily Participation Certificates.
Current wording
As of September 30, 2025, our holdings of Agency CMBS represented approximately 16% of our total investment portfolio compared to 15% as of December 31, 2024 and 11% as of September 30, 2024. Our holdings of 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 September 30, 2025, approximately 81% of our Agency CMBS holdings were Fannie Mae DUS and 19% 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 six months ended June 30, 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 $485.0 million.
Current 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, 2025, we entered into interest rate swaps with a notional amount of $745.0 million and terminated existing interest rate swaps with a notional amount of $630.0 million.
Previous 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 thesix months ended June 30, 2025, we entered into futures contracts with a notional amount of $2.9 billion and terminated existing futures contracts with a notional amount of $3.5 billion.
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 nine months ended September 30, 2025, we entered into futures contracts with a notional amount of $4.2 billion and terminated existing futures contracts with a notional amount of $4.6 billion.
Previous wording
Daily variation margin for interest rate swaps and futures contracts 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
Daily variation margin for interest rate swaps and futures contracts is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statements of operations.
Previous wording
As of June 30, 2025, we had 6,600,754 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 six months ended June 30, 2025 and 2024.
Current wording
As of September 30, 2025, we had 20,388,007 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, 2025 and 2024.
Previous wording
For information on dividends declared during the six months ended June 30, 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.
Current wording
For information on dividends declared during the nine months ended September 30, 2025 and 2024, see Note 10 - “Stockholders' Equity” of our condensed consolidated financial statements in Part I. Item 1 of this quarterly report on Form 10-Q.
Previous wording
During the six months ended June 30, 2025, we did not repurchase any shares of our common stock.
Current wording
During the nine months ended September 30, 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 six months ended June 30, 2025, we repurchased and retired 96,803 and 186,949 and shares of Series C Preferred Stock, respectively. 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. We redeemed all outstanding shares of our Series B Preferred Stock in December 2024. As of June 30, 2025, we had authority to repurchase 519,710 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 and nine months ended September 30, 2025, we repurchased and retired 89,223 and 276,172 shares of Series C Preferred Stock, respectively. 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. We redeemed all outstanding shares of our Series B Preferred Stock in December 2024. As of September 30, 2025, we had authority to repurchase 430,487 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 9.8% as of June 30, 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.
Current wording
Our book value per common share decreased 5.7% as of September 30, 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 six months ended June 30, 2025 and 2024.
Current wording
The table below presents information from our condensed consolidated statements of operations for the three and nine months ended September 30, 2025 and 2024.
Previous 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, 2025 and 2024.
Current 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, 2025 and 2024.
Previous wording
Total average earning assets increased $231.8 million and $340.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, 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 decreased $184.1 million for the three months ended September 30, 2025 and increased $164.3 million for the nine months ended September 30, 2025 compared to the same periods 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 5 basis points and 6 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Changes in our average earning asset yields are driven by the composition of our investments, amortized cost of our securities and prepayment rates.
Current wording
Average earning asset yields increased 11 basis points for the three months ended September 30, 2025 and were unchanged for the nine months ended September 30, 2025 compared to the same periods 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
Our interest income increased for the three and six months ended June 30, 2025 compared to the same periods in 2024 due to higher average earning assets.
Current wording
Our interest income decreased slightly for the three months ended September 30, 2025 compared to the same period in 2024 as a decrease in average earning assets was largely offset by an increase in average earning asset yields. Interest income increased $7.0 million for the nine months ended September 30, 2025 compared to the same period in 2024 due to higher average earning assets.
Previous wording
Our Agency RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income. Generally, in an environment of falling interest rates, prepayment speeds will increase as homeowners are more likely to prepay their existing mortgage and refinance into a lower borrowing rate. In an environment of rising interest rates, prepayment speeds will generally decrease as homeowners are not as incentivized to refinance. For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur. For 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.
Current wording
Our Agency RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income. Generally, in an environment of falling interest rates, prepayment speeds will increase as homeowners are more likely to prepay their existing mortgage and refinance into a lower borrowing rate. In an environment of rising interest rates, prepayment speeds will generally decrease as homeowners are not as incentivized to refinance. For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur. For Agency RMBS purchased at a substantial premium relative to principal value, expected future prepayment speeds are estimated on at least a quarterly basis. If the actual prepayment speed during the period is faster than estimated, the amortization on securities purchased at a premium to par value will be accelerated, resulting in lower interest income recognized.
Previous wording
The following table presents net (premium amortization) discount accretion recognized for the three and six months ended June 30, 2025 and 2024.
Current wording
The following table presents net (premium amortization) discount accretion recognized for the three and nine months ended September 30, 2025 and 2024.
Previous wording
Net premium amortization was $356,000 for the three months ended June 30, 2025 compared to net discount accretion of $1.8 million for the same period in 2024. Net premium amortization was $144,000 for the six months ended June 30, 2025 compared to net discount accretion of $2.9 million for the same period in 2024. The change in net (premium amortization) discount accretion for the three and six months ended June 30, 2025 compared to the same periods in 2024 was primarily a result of repositioning a portion of our investment portfolio into higher coupon securities that have higher amortized costs relative to principal value.
Current wording
The change in net (premium amortization) discount accretion for the three and nine months ended September 30, 2025 compared to the same periods in 2024 was primarily a result of repositioning a portion of our investment portfolio into higher coupon securities that have higher amortized costs relative to principal value.
Previous wording
The table below presents information related to our borrowings and cost of funds for thethree and six months ended June 30, 2025 and 2024.
Current wording
The table below presents information related to our borrowings and cost of funds for the three and nine months ended September 30, 2025 and 2024.
Previous wording
Total average borrowings increased $325.6 million and $417.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. Changes in our average borrowings are a factor of our total stockholders' equity and our desired leverage levels.
Current wording
Total average borrowings decreased $114.7 million for the three months ended September 30, 2025 and increased $238.7 million for the nine months ended September 30, 2025 compared to the same periods 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 97 basis points and 104 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively. 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 June 30, 2025.
Current wording
Our average cost of funds decreased 78 basis points and 95 basis points for the three and nine months ended September 30, 2025 compared to the same periods in 2024, respectively. Changes in our costs of funds are substantially driven by the Federal Funds target rate, which was set at a range of 4.25% to 4.50% for the majority of the three and nine months ended September 30, 2025 and a range of 5.25% to 5.50% for the majority of the three and nine months ended September 30, 2024.
Previous wording
The table below presents the components of interest expense for the three and six months ended June 30, 2025 and 2024.
Current wording
The table below presents the components of interest expense for the three and nine months ended September 30, 2025 and 2024.
Previous wording
Our interest expense decreased $6.5 million and $13.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024 due to a lower cost of funds, which was partially offset by an increase in average borrowings.
Current wording
Our interest expense decreased $11.0 million for three months ended September 30, 2025 compared to the same period in 2024 due to a lower cost of funds and a decrease in average borrowings. Our interest expense decreased $24.1 million for the nine months ended September 30, 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.
Previous wording
The table below presents the components of net interest income for the three and six months ended June 30, 2025 and 2024.
Current wording
The table below presents the components of net interest income for the three and nine months ended September 30, 2025 and 2024.
Previous 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 and six months ended June 30, 2025 compared to the same periods 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.
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 September 30, 2025 compared to the same period in 2024 due to a lower cost of funds and an increase in average earning asset yields. Our net interest income and net interest rate margin increased for the nine months ended September 30, 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 six months ended June 30, 2025 and 2024.
Current wording
The table below summarizes the components of gain (loss) on investments, net for the three and nine months ended September 30, 2025 and 2024.
Previous wording
During the three and six months ended June 30, 2025, we sold MBS and realized net gains of $1.8 million and net losses of $3.6 million, respectively (June 30, 2024: net losses of $6.5 million and $9.8 million). Net realized gains during the three months ended June 30, 2025 primarily reflect sales of Agency RMBS during the period of heightened market volatility experienced early in the second quarter. Net realized losses during the six months ended June 30, 2025 primarily reflect sales of lower coupon Agency RMBS during the first quarter. 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.
Current wording
During the three and nine months ended September 30, 2025, we sold MBS and realized net gains of $1.2 million and net losses of $2.4 million, respectively (three and nine months ended September 30, 2024: net gains of $5.0 million and net losses of $4.8 million, respectively). Net realized gains during the three months ended September 30, 2025 reflect a decrease in our allocation to higher coupon Agency RMBS. Net realized losses during the nine months ended September 30, 2025 primarily reflect sales of lower coupon Agency RMBS during the first quarter. 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.
Previous wording
We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $7.1 million in the three months ended June 30, 2025 as the heightened market volatility that negatively impacted valuations in April largely subsided prior to quarter end. We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $80.5 million in the six months ended June 30, 2025 primarily due to a sharp decline in interest rates during the first quarter of the year, as valuations on fixed-rate securities increased as interest rates fell. 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, respectively, due to 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.
Current wording
We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $48.3 million and $128.8 million in the three and nine months ended September 30, 2025, respectively, primarily due to a sharp decline in interest rates during the year, as valuations on fixed-rate securities increased as interest rates fell. 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, respectively, due to lower interest rates during the third quarter resulting in improved valuations on Agency RMBS and Agency CMBS.
Previous wording
We did not hold any U.S. Treasury securities during the three and six months ended June 30, 2025 or the three months ended June 30, 2024. We recorded net realized and unrealized losses of $458,000 on U.S. Treasury securities in the six months ended June 30, 2024.
Current wording
We did not hold any U.S. Treasury securities during the three and nine months ended September 30, 2025 or the three months ended September 30, 2024. We recorded net realized and unrealized losses of $458,000 on U.S. Treasury securities in the nine months ended September 30, 2024.
Previous wording
We recorded a $263,000 and $302,000 increase in the provision for credit losses during the three and six months ended June 30, 2024, respectively, on a single security based on a comparison of the security's amortized cost basis to discounted expected cash flows. We sold the security in 2025 and no longer own any securities that are classified as available-for-sale and, therefore, subject to evaluation for credit losses.
Current wording
We recorded an $80,000 decrease and $222,000 increase in the provision for credit losses during the three and nine months ended September 30, 2024, respectively, on a single security based on a comparison of the security's amortized cost basis to discounted expected cash flows. We sold the security in 2025 and no longer own any securities that are classified as available-for-sale and, therefore, subject to evaluation for credit losses.
Previous wording
For the six months ended June 30, 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.
Current wording
For the nine months ended September 30, 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
As of June 30, 2025 and December 31, 2024, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR.
Current wording
As of September 30, 2025 and December 31, 2024, we held the following interest rate swaps whereby we pay fixed interest rates and receive floating interest rates based upon SOFR.
Previous wording
During the six months ended June 30, 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 $485.0 million. We recorded net losses of $16.2 million and $63.8 million on interest rate swaps for the three and six months ended June 30, 2025, respectively, due to notably tighter swap spreads during the second quarter and a sharp decline in interest rates during the first six months of the year. We recorded net gains of $29.3 million and $122.4 million for the three and six months ended June 30, 2024 primarily due to changes in interest rate expectations.
Current wording
We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense. During the nine months ended September 30, 2025, we entered into interest rate swaps with a notional amount of $745.0 million and terminated existing interest rate swaps with a notional amount of $630.0 million. We recorded net losses of $595,000 and $64.4 million on interest rate swaps for the three and nine months ended September 30, 2025, respectively (three and nine months ended September 30, 2024: net losses of $119.1 million and net gains of $3.3 million, respectively). Net losses during the nine months ended September 30, 2025 were due to a sharp decline in swap rates during the year.
Previous wording
We use futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the six months ended June 30, 2025, we entered into futures contracts with a notional amount of $2.9 billion and terminated existing futures contracts with a notional amount of $3.5 billion. We recognized net losses of $13.5 million and $46.4 million on futures contracts during the three and six months ended June 30, 2025, respectively, due to changes in interest rate expectations. We did not hold any futures contracts during the three and six months ended June 30, 2024.
Current wording
We use futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the nine months ended September 30, 2025, we entered into futures contracts with a notional amount of $4.2 billion and terminated existing futures contracts with a notional amount of $4.6 billion. We recognized net losses of $8.6 million and $55.0 million on futures contracts during the three and nine months ended September 30, 2025, respectively (three and nine months ended September 30, 2024: net losses of $9.9 million). Net losses during the three and nine months ended September 30, 2025 were due to a decline in interest rates.
Previous wording
We primarily use TBAs that we do not intend to physically settle on the contractual settlement date in long positions as an alternative means of investing in and financing Agency RMBS. During the second quarter of 2025, we used short positions in TBAs in response to heightened market volatility to manage risk and economically hedge a portion of our exposure to changes in Agency RMBS valuations. We recorded net losses of $1.2 million and net gains of $2.6 million on TBAs during the three and six months ended June 30, 2025, respectively (three and six months ended June 30, 2024: net losses of $998,000).
Current wording
We primarily use TBAs that we do not intend to physically settle on the contractual settlement date in long positions as an alternative means of investing in and financing Agency RMBS. During the second quarter of 2025, we used short positions in TBAs in response to heightened market volatility to manage risk and economically hedge a portion of our exposure to changes in Agency RMBS valuations. We did not hold any TBAs during the three months ended September 30, 2025. We recorded net gains of $2.6 million on TBAs during the nine months ended September 30, 2025 (three and nine months ended September 30, 2024: net gains of $1.6 million and $621,000, respectively).
Previous wording
We incurred management fees of $2.8 million and $5.8 million for the three and six months ended June 30, 2025, respectively (June 30, 2024: $2.9 million and $5.8 million). Our management fees are determined by our average stockholders' equity. Refer to Note 9 – "Related Party Transactions" of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.
Current wording
We incurred management fees of $2.7 million and $8.5 million for the three and nine months ended September 30, 2025, respectively (three and nine months ended September 30, 2024: $2.9 million and $8.7 million, respectively). Our management fees are determined by our average stockholders' equity. Refer to Note 9 – "Related Party Transactions" of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.
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Previous report — wording carried elsewhere
138,008 shares of Series B Preferred Stock, respectively, and 105,492 and 201,409 shares of Series C Preferred Stock, respectively. Gains and losses on repurchases and retirements of preferred stock represent the difference between the consideration transferred and the carrying value of the preferred stock.