Orchid Island Capital, Inc.
For the period ended Sep 30, 2025. Filed Oct 24, 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 Oct 24, 2025
ORC$4.94-1.0%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 2025-07-25.
0001437749-25-023505
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-09-30; filed 2025-10-24.
0001437749-25-031728
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 137 previous paragraphs and 136 current paragraphs.
86 unchanged; 39 reworded; 10 added; 12 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 55 previous and 55 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 (10)
Current report
Net Income Summary
Current report
The third quarter may prove to be pivotal. Offsetting forces have driven economic activity and outlook since the new U.S. presidential administration took office in January. On the one hand the significant tariffs introduced have clouded the economic outlook and added upward pressure on prices – or at least such upward pressure is anticipated even if it hasn’t materialized to the extent expected to date. On the other hand, the administration has a decidedly pro-business agenda and has enacted the One Big Beautiful Bill Act (the “OBBB”), which made permanent most of the tax legislation originally enacted in 2017 as part of the Tax Cuts and Jobs Act of 2017, with minor revisions. The OBBB is likely to be stimulative for the economy yet unlikely to reduce pressure on the fiscal deficit in the near term, itself a source of stimulus for the economy. The net effect of these two opposing forces appears, at least for now, to be leaning in the direction of economic weakness, especially for the labor market, which softened during the third quarter. The Chairman of the Fed, has stated the FOMC views the balance of risks as skewed towards economic and labor market weakness versus inflation, with the effects of tariffs causing only a one-time increase in prices versus a persistent source of inflation. In response to the deterioration in the labor market, the Fed lowered the Fed Funds rate by 25 basis points at their September meeting, and subsequent remarks by the Chairman imply they will do so again at upcoming meetings, consistent with market expectations.
Current report
The impact of tariffs on inflation, particularly goods inflation, has yet to meet market expectations although there is evidence of such price pressures emerging. Further, it remains possible, to the extent tariff-induced price increases have been absorbed by other parties along the supply chain, that such pressure could increase in the future to the extent the price increases are not fully absorbed. There is also the possibility that the stimulative effects of the OBBB and numerous other efforts on the part of the administration to reduce regulations, stimulate growth and onshore of production back into the U.S. could prevail and cause economic growth to rebound, perhaps significantly. These considerations are behind the subset of Fed officials and market participants that feel economic and labor market weakness, and the need for the Fed to ease monetary policy, is misplaced or will only prove to be temporary.
Current report
On October 1, 2025, the U.S. federal government shut down as Congress was unable to agree on a funding bill to keep the government running. The shutdown of the government prevented most economic data from being released, adding uncertainty to the economic outlook. To the extent the shutdown continues for too long the shutdown itself will become a source of economic weakness as most federal employees go unpaid and the government – the largest consumer in the economy – has limited capacity to spend.
Current report
Interest rate movements during the third quarter were very minor – less than 10 basis points – for all points along the cash U.S. Treasury curve and the SOFR swap curve for maturities longer than 2 years. For shorter maturities rate movements were larger – and as much as 35 to 40 basis points lower – for maturities inside 2 years. The largest declines were around the 6-month maturity, reflecting market expectations of interest rate cuts by the Fed over the next two quarters. One-year maturities, in both cash U.S. Treasuries and SOFR swaps, declined by 30 and 22 basis points, respectively, again reflecting market expectations of Fed Funds rate cuts in the near term. Since the end of the third quarter, interest rates have declined slightly more – approximately 10 basis points in the case of longer maturities – as a result of uncertainty surrounding the government shutdown.
Current report
As rates were relatively stable for longer maturity U.S. Treasuries and SOFR swaps and lower for shorter duration instruments, both the cash U.S. Treasury curve and SOFR swap curve remained upward sloping and the steepness of both curves increased modestly. The spread between the 2-year and 10-year U.S. Treasury securities has increased by approximately 5 basis points to approximately 55 basis points at quarter end, and remained in that area since.
Current report
While interest rates were relatively unchanged during the quarter, implied volatility in interest rate swaptions declined materially during the quarter. The MOVE index, comprised of a basket of four interest rate swaptions and a widely referenced proxy for interest rate volatility, has been declining since May 2025, when the administration announced reciprocal tariffs. The index peaked in April at nearly 140 and has declined since, reaching a recent low of just under 70 on October 3, 2025. The index was at approximately 90 on June 30, 2025. Declining interest rate volatility is beneficial for Agency RMBS given the prepayment option held by the borrowers of the loans underlying the securities.
Current report
The market conditions described above – low interest rate volatility and the prospects for reduced funding levels via Fed Funds rate cuts – were generally conducive to Agency RMBS performance. Spreads to comparable duration U.S. Treasuries and SOFR swaps declined, and most securities generated positive absolute and relative returns. However, as prevailing mortgage rates available to borrowers declined over the third quarter and into the fourth quarter prepayments have increased for securities with premium prices and expectations for continued high prepayment rates remain. The Mortgage Bankers Association index of 30-year contract rates declined from 6.79% for the week ended June 27, 2025, to 6.46% for the week ended September 26, 2025. The index has declined slightly more since the end of the third quarter. Secondly, the Trump administration has spoken of privatizing the Enterprises, although it does not appear as if this development is imminent. If it were to occur, an important consideration would be if the implicit government guarantee of the securities issued by the Enterprises would be retained. Comments made by the administration to date indicate that they would likely be maintained, but there can be no assurance that would be the case.
Current report
The path of economic performance, the level of interest rates and the performance of Agency RMBS appear to be at a crossroads. During the third quarter, the path seemed to steer towards slower growth, lower rates and generally solid performance for Agency RMBS. The labor market in particular appears to have weakened significantly over the past two quarters, and the Fed intervened and lowered the Fed Funds rate by 25 basis points in September and appears likely to do so again at their October meeting at least, if not more times at subsequent meetings. The U.S. federal government shut down again on October 1, 2025, and this has only added to the fear the economy will remain weak. However, other measures of economic performance, when available, indicate the economy may not be so weak. Growth, as measured by GDP, remains well above 0%, retail sales and corporate earnings remain strong, developments with artificial intelligence have the potential to materially lift productivity and output, and the administration has a profoundly pro-growth agenda – all of which suggest the current softness may be temporary. The outcome will likely emerge over the next quarter or two.
Current report
While it remains to be seen just which path the economy takes going forward, the third quarter was conducive to solid performance for the Agency RMBS market and the Company. The sector generated positive absolute and excess returns, and the Company generated a positive total return for the quarter as well. The Company continued grow its capital through the issuance of shares of common stock through its at the market program. While Agency RMBS generated positive returns for the third quarter of 2025, returns available in the sector remain above historical averages. To the extent such favorable market conditions persist, we expect that new capital can be deployed with the prospects for above average returns.
Removed paragraphs (12)
Previous report
Net (Loss) Income Summary
Previous report
We had average outstanding borrowings of $6.1 billion and $3.9 billion and total interest expense of $130.5 million and $105.1 million for the six months ended June 30, 2025 and 2024, respectively. Our average cost of funds was 4.26% for the six months ended June 30, 2025, compared to 5.43% for the comparable period in 2024. The $25.4 million increase in interest expense was due to the 117 bps decrease in the average cost of funds, combined with a $2.3 billion increase in average outstanding borrowings during the six months ended June 30, 2025, as compared to the comparable period in 2024.
Previous report
The start of the second quarter of 2025 was extremely turbulent and re-set the trajectory for all domestic markets. The trigger event was the announcement of the list of what were termed “reciprocal” tariffs introduced by President Trump on April 2 nd, “Liberation Day.” While the implementation of the reciprocal tariffs – the most significant in percentage terms - was paused for 90 days a week later on April 9 th, tariff-related developments remained the dominant driver of markets and the economic outlook. The pause in implementation of the reciprocal tariffs was intended to allow time for the administration to negotiate and execute trade agreements with the various trading partners of the United States. The deadline for finalizing such deals is not far off, and to date not many deals have been reached. There remains considerable uncertainty in the market regarding what will happen when the pause period ends and there are countries that have yet to reach a deal with the U.S. In the interim, statements regarding the negotiations and potential additional tariffs made by the President and members of his cabinet have been frequent and generally impacted markets when they occurred. However, a sense of “headline fatigue” has settled over the markets and successive statements seem to have a diminishing impact.
Previous report
Over the course of the quarter, the focus of the administration shifted from purely tariff-related matters to passage of the President’s highest legislative priority. What became known as the One Big Beautiful Bill Act (“the Act”) was signed into law by the President on July 4 th. The Act made permanent most of the tax legislation originally enacted in 2017 as part of the Tax Cuts and Jobs Act of 2017, with minor revisions. Importantly, the Act is likely to be stimulative for the economy and not likely to reduce pressure on the fiscal deficit in the near term. The fiscal deficit has been a growing concern for markets as funding needs continue to escalate, putting upward pressure on treasury yields. Growing fiscal deficits are also a global issue, as most advanced economies in the world are similarly situated.
Previous report
Economic developments during the second quarter continued to confound market participants, as the anticipated slowdown triggered by the tremendous uncertainty introduced by the administration’s tariffs has yet to appear. To date, any meaningful impact on goods inflation resulting from the tariffs has yet to materialize as well, although the data for June, released in July, did show modest upward pressure on goods prices. It is likely that the continued deficits run by the federal government, as they have since the Covid-19 outbreak, continue to buttress the economy and prevent a likely economic slowdown from occurring. The key metrics the Fed focuses on – namely, the jobs market and inflation data – continue to suggest there is no urgent need for them to ease monetary policy. Job growth, while not robust, remains above the level considered adequate to hold the unemployment rate steady, which has occurred, and inflation data remains above the Fed’s target level with the ultimate impact of the tariffs likely yet to come. Public comments by the Fed chair and most – but not all – members of the FOMC reflect the notion it would be prudent for the Fed to continue to watch the incoming economic data before determining when and by how much to adjust policy.
Previous report
Interest rate developments followed a similar pattern to the economic developments described above. The initial reaction to the tariff announcement in early April was for the Treasury curve to steepen, as the front end of the curve moved lower in yield, consistent with anticipated interest rate cuts by the Fed as the economy slowed in response to the coming trade war. Yields on longer maturity Treasuries initially moved lower as well but then quickly reversed and moved higher in anticipation of significantly higher inflation driven by the impact of the tariffs on goods prices. There was also the fear that reserve status of the dollar and Treasuries might be imperiled, and the risk premium associated with owning Treasuries, particularly long-maturity securities, would increase.
Previous report
Over the course of April, the yield of the 2-year Treasury declined from 3.885% on March 31, 2025, to 3.605% on April 30, 2025, the lowest yield for the year. The yield of the 10-year Treasury moved from 4.207% on March 31, 2025, to 3.997% on April 4 th, but then moved considerably higher, eventually to 4.601% in late May. The spread between the 2-year and 10-year Treasuries increased from approximately 30 bps at the end of the first quarter of 2025 to approximately 50 bps by the end of April. It generally remained around 50 bps for the balance of the quarter. At the end of April, market pricing for the Fed funds rate reflected over 4 cuts of 25 bps by the end of 2025.
Previous report
Over the balance of the second quarter of 2025, Treasury yields remained volatile on a daily basis, responding to frequent public comments regarding tariffs and trade negotiations by the administration, but the spread between the 2-year and 10-year Treasuries remained fairly stable at around 50 bps. The yields on the 2-year and 10-year Treasuries both traded in approximately 20 bps ranges individually but were highly correlated with one another over the same period. On the other hand, market pricing for the Fed Funds rate changed after April as the administration’s focus shifted towards the Act and the economic data failed to live up to market expectations. Jobs and economic growth data remained fairly stable, and the inflation data did not reflect significant pressure from the tariffs. By the end of the second quarter, the market was only expecting a little over 2.5 twenty-five bps reductions of the Fed Funds rate. The number of cuts continues to decline and current market pricing is for less than two cuts of 25 bps by year end.
Previous report
The market turmoil associated with the introductions of the reciprocal tariffs was nearly as severe as the initial days of the Covid-19 outbreak. Prices for any assets with risk associated with them were sold and levered investors were forced to sell to meet margin calls. Agency MBS, given their typical high liquidity and minimal risk, were also sold as investors generally sold what they could in an effort to minimize realized losses. This period lasted until the pause in implementation of the reciprocal tariffs was announced on April 9 th, but losses sustained across markets were substantial and the confidence in the status of the dollar and Treasuries was shaken. Spreads on Agency RMBS to comparable duration Treasuries, and especially to comparable duration swaps, increased by over 30 bps in early April and came withing approximately 10 bps of the extremes seen at the end of the Fed’s 525 bps tightening cycle in late 2023. Spreads to swaps have not recovered much of the widening since early April and are only approximately 15 bps lower currently. As the market anticipates continued elevated levels of Treasury issuance going forward, and the government runs fiscal deficits at or near $2 trillion per year, swap rates have continued to decline relative to nominal Treasury yields. As a result, swap spreads have become progressively more negative, and spreads of Agency RMBS to swaps have increased. Swaps are a primary instrument used by the Company to hedge, and while this development has hurt the performance of our hedges and portfolio over the course of the second quarter, it has increased the potential returns associated with investing in new Agency RMBS.
Previous report
The second quarter of 2025 was a very turbulent period for financial markets, with two large catalysts driving the volatility. The initial shock, and clearly the larger of the two, was reciprocal tariffs announced by the Trump administration against essentially every trading partner of the United States. This announcement was expected, but the magnitude of the tariffs greatly exceeded market expectations. After the announcement, market conditions resembled those following the outbreak of Covid-19, if only slightly less severe. A week later, the administration announced a pause in implementation of the tariffs for 90 days and markets slowly recovered some semblance of stability. The markets expected a slowdown in economic activity and accelerated inflation as trade wars unfolded. The Fed was expected to be forced to lower rates by 100 bps or more by year end and the Treasury curve steepened. While market conditions remained volatile for the balance of the quarter, the market slowly grew less affected by subsequent developments on the tariff front and most risk assets recovered fully, to a large extent driven by the second catalyst.
Previous report
The second catalyst emerged as the administration’s focus shifted to their highest legislative objective, the Act. The beneficial impact of the Act on the economy drove expectations as the market became somewhat immunized to tariff developments, especially as the feared surge in inflation failed to materialize, at least to date. In conjunction with this shift in market perception, the incoming economic data proved resilient and expectations for Fed rate cuts continued to subside and get pushed further into the future. Notably for the Company, while risk assets generally recovered from the severe turmoil early in the second quarter, the Agency RMBS sector did not fully recover, as least versus comparable duration hedges, resulting in negative excess returns for the quarter.
Previous report
As the third quarter unfolds, the trend of strong risk asset performance and resilient economic data continues. The inflation data has begun to show some impact from the tariffs, but the economy appears sufficiently resilient to absorb them, certainly benefiting from continued fiscal stimulus (large fiscal deficits), the unfolding benefits of artificial intelligence, progress on trade negotiations, and a very pro-business administration as evidenced by the Act. The Agency RMBS market continues to languish, although returns available in the market remain elevated. The Company has significantly increased its capital base year-to-date to take advantage of these favorable investment opportunities, while maintaining leverage levels below historical levels.
Reworded paragraphs (39)
Previous wording
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.
Current wording
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of gross proceeds from the sales of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.
Previous wording
On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of the our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 30,513,253 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million and net proceeds of approximately $245.8 million, after commissions and fees, prior to its termination in February 2025.
Current wording
On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of gross proceeds from the sales of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 30,513,253 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million and net proceeds of approximately $245.8 million, after commissions and fees, prior to its termination in February 2025.
Previous wording
On February 24, 2025, we entered into an equity distribution agreement (the “February 2025 Equity Distribution Agreement”) with four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $350,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through June 30, 2025, we issued a total of 34,355,086 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $265.4 million, and net proceeds of approximately $261.2 million, after commissions and fees. Subsequent to June 30, 2025, we issued a total of 162,498 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $1.2 million, and net proceeds of approximately $1.2 million, after commissions and fees.
Current wording
On February 24, 2025, we entered into an equity distribution agreement (the “February 2025 Equity Distribution Agreement”) with four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $350,000,000 of gross proceeds from the sales of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. On July 28, 2025, the February 2025 Equity Distribution Agreement was amended to increase the aggregate amount of gross proceeds from the sales of shares that may be offered by $150,000,000 to a total of $500,000,000. Through September 30, 2025, we issued a total of 56,019,745 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $420.2 million, and net proceeds of approximately $413.5 million, after commissions and fees. Subsequent to September 30, 2025, we issued a total of 3,472,759 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $25.0 million, and net proceeds of approximately $24.6 million, after commissions and fees.
Previous wording
From the inception of the stock repurchase program through June 30, 2025, the Company repurchased a total of 6,257,826 shares at an aggregate cost of approximately $84.8 million, including commissions and fees, for a weighted average price of $13.55 per share. During thesix months ended June 30, 2025, the Company repurchased a total of 1,113,224 shares at an aggregate cost of approximately 7.3 million, including commissions and fees, for a weighted average price of $6.52 per share. During the year ended December 31, 2024, the Company repurchased a total of 396,241 shares at an aggregate cost of approximately $3.3 million, including commissions and fees, for a weighted average price of $8.30 per share. The remaining authorization under the stock repurchase program as of July 24, 2025 was 2,719,137 shares.
Current wording
From the inception of the stock repurchase program through September 30, 2025, the Company repurchased a total of 6,257,826 shares at an aggregate cost of approximately $84.8 million, including commissions and fees, for a weighted average price of $13.55 per share. During thenine months ended September 30, 2025, the Company repurchased a total of 1,113,224 shares at an aggregate cost of approximately 7.3 million, including commissions and fees, for a weighted average price of $6.52 per share. During the year ended December 31, 2024, the Company repurchased a total of 396,241 shares at an aggregate cost of approximately $3.3 million, including commissions and fees, for a weighted average price of $8.30 per share. The remaining authorization under the stock repurchase program as of October 23, 2025 was 2,719,137 shares.
Previous wording
Described below are the Company’s results of operations for the six and three months ended June 30, 2025, as compared to the Company’s results of operations for the six and three months ended June 30, 2024.
Current wording
Described below are the Company’s results of operations for the nine and three months ended September 30, 2025, as compared to the Company’s results of operations for the nine and three months ended September 30, 2024.
Previous wording
Net loss for thesix months ended June 30, 2025 was $16.5 million, or $0.16 per share. Net income for thesix months ended June 30, 2024 was $14.8 million, or $0.27 per share. Net loss for thethree months ended June 30, 2025 was $33.6 million, or $0.29 per share. Net loss for thethree months ended June 30, 2024 was $5.0 million, or $0.09 per share. The components of net (loss) income for thesix and three months ended June 30, 2025 and 2024, along with the changes in those components are presented in the table below:
Current wording
Net income for thenine months ended September 30, 2025 was $55.6 million, or $0.48 per share. Net income for thenine months ended September 30, 2024 was $32.1 million, or $0.53 per share. Net income for thethree months ended September 30, 2025 was $72.1 million, or $0.53 per share. Net income for thethree months ended September 30, 2024 was $17.3 million, or $0.24 per share. The components of net income for thenine and three months ended September 30, 2025 and 2024, along with the changes in those components are presented in the table below:
Previous wording
Described below are the Company’s results of operations for the six months ended June 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Current wording
Described below are the Company’s results of operations for the nine months ended September 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Previous wording
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the six months ended June 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Current wording
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the nine months ended September 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Previous wording
During thesix months ended June 30, 2025, we earned net interest incomeof $42.9 million, consisting of $173.4 millionof interest income from RMBS assets, offset by $130.5 millionof interest expense on borrowings. For the comparable period ended June 30, 2024, we incurred $3.2 millionof net interest expense, consisting of $101.9 millionof interest income from RMBS assets offset by $105.1 millionof interest expense on borrowings. The $71.5 million increase in interest income was due to a 35 basis point ("bps")increasein the yield on average RMBS, combined with a $2.4 billion increasein average RMBS. The $25.4 million increasein interest expense was due to a 117 bps decreasein the average cost of funds, combined with a $2.3 billion increase in average outstanding borrowings.
Current wording
During thenine months ended September 30, 2025, we earned net interest incomeof $69.8 million, consisting of $281.8 millionof interest income from RMBS assets, offset by $212.0 millionof interest expense on borrowings. For the comparable period ended September 30, 2024, we incurred $2.8 millionof net interest expense, consisting of $169.6 millionof interest income from RMBS assets offset by $172.4 millionof interest expense on borrowings. The $112.2 million increase in interest income was due to a 30 basis point ("bps") increasein the yield on average RMBS, combined with a $2.5 billion increasein average RMBS. The $39.6 million increase in interest expense was due to a $2.4 billion increase in average outstanding borrowings, offset by a 118 bps decreasein the average cost of funds.
Previous wording
During the three months ended June 30, 2025, we earned net interest income of$23.2 million consisting of$92.3 million of interest income from RMBS assets offset by$69.1 million of interest expense on borrowings. For the comparable period ended June 30, 2024, we incurred$0.7 million of net interest expense, consisting of$53.1 million of interest income from RMBS assets offset by$53.8 million of interest expense on borrowings. The$39.2 million increase in interest income was due to a 33 bpsincrease in the yield on average RMBS, combined with a $2.7 billion increase in average RMBS. The$15.3 million increase in interest expense was due to a 111 bpsdecrease in the average cost of funds, combined with a$2.5 billion increase in average outstanding borrowings.
Current wording
During the three months ended September 30, 2025, we earned net interest income of$26.9 million consisting of$108.4 million of interest income from RMBS assets offset by$81.5 million of interest expense on borrowings. For the comparable period ended September 30, 2024, we incurred$0.3 million of net interest income, consisting of$67.6 million of interest income from RMBS assets offset by$67.3 million of interest expense on borrowings. The$40.8 million increase in interest income was due to a 22 bpsincrease in the yield on average RMBS, combined with a $2.7 billion increase in average RMBS. The$14.2 million increase in interest expense was due to a$2.5 billion increase in average outstanding borrowings, offset by a 117 bpsdecrease in the average cost of funds.
Previous wording
On an economic basis, our interest expense on borrowings for thesix months ended June 30, 2025 and 2024 was $88.7 millionand $48.1 million, respectively, resulting in $84.7 million and $53.9 millionof economic net interest income, respectively.
Current wording
On an economic basis, our interest expense on borrowings for thenine months ended September 30, 2025 and 2024 was $148.3 millionand $83.5 million, respectively, resulting in $133.5 million and $86.1 millionof economic net interest income, respectively.
Previous wording
On an economic basis, our interest expense on borrowings for the three months ended June 30, 2025 and 2024 was $48.2 millionand$24.3 million, respectively, resulting in$44.1 million and$28.8 million of economic net interest income, respectively.
Current wording
On an economic basis, our interest expense on borrowings for the three months ended September 30, 2025 and 2024 was $59.6 millionand$35.4 million, respectively, resulting in$48.8 million and$32.3 million of economic net interest income, respectively.
Previous wording
The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income (expense) and net interest spread for the six months ended June 30, 2025 and 2024, and for each quarter in 2025 to date and 2024 on both a GAAP and economic basis.
Current wording
The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income (expense) and net interest spread for the nine months ended September 30, 2025 and 2024, and for each quarter in 2025 to date and 2024 on both a GAAP and economic basis.
Previous wording
The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured RMBS and PT RMBS, for the six months ended June 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Current wording
The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured RMBS and PT RMBS, for the nine months ended September 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Previous wording
We had average outstanding borrowings of $6.5 billion and $4.0 billion and total interest expense of $69.1 million and $53.8 million for the three months ended June 30, 2025 and 2024, respectively. Our average cost of funds was 4.23% for the three months ended June 30, 2025, compared to 5.34% for the comparable period in 2024. The $15.3 million increase in interest expense was due to the 111 bps decrease in the average cost of funds, combined with a $2.5 billion increase in average outstanding borrowings during the three months ended June 30, 2025, as compared to the comparable period in 2024.
Current wording
We had average outstanding borrowings of $7.3 billion and $4.8 billion and total interest expense of $81.5 million and $67.3 million for the three months ended September 30, 2025 and 2024, respectively. Our average cost of funds was 4.45% for the three months ended September 30, 2025, compared to 5.62% for the comparable period in 2024.
Previous wording
Our economic interest expense was $88.7 million and $48.1 million for the six months ended June 30, 2025 and 2024, respectively. There was a 40 bps increase in the average economic cost of funds to 2.89% for the six months ended June 30, 2025, from 2.49% for the six months ended June 30, 2024.
Current wording
Our economic interest expense was $148.3 million and $83.5 million for the nine months ended September 30, 2025 and 2024, respectively. There was a 36 bps increase in the average economic cost of funds to 3.03% for the nine months ended September 30, 2025, from 2.67% for the nine months ended September 30, 2024.
Previous wording
Our economic interest expense was $48.2 million and $24.3 million for the three months ended June 30, 2025 and 2024, respectively. There was a 54 bps increase in the average economic cost of funds to 2.95% for the three months ended June 30, 2025, from 2.41% for the three months ended June 30, 2024.
Current wording
Our economic interest expense was $59.6 million and $35.4 million for the three months ended September 30, 2025 and 2024, respectively. There was a 29 bps increase in the average economic cost of funds to 3.25% for the three months ended September 30, 2025, from 2.96% for the three months ended September 30, 2024.
Previous wording
Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average cost of funds calculated on a GAAP basis was 9 bps below the one-month average SOFR and 14 bps below the six-month average SOFR for the quarter ended June 30, 2025. Our average economic cost of funds was 137 bps below the average one-month SOFR and 142 bps below the average six-month SOFR for the quarter ended June 30, 2025. The average term to maturity of the outstanding repurchase agreements was 35 days at June 30, 2025 and 26 days at December 31, 2024.
Current wording
Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average cost of funds calculated on a GAAP basis was 14 bps above the one-month average SOFR and 8 bps above the six-month average SOFR for the quarter ended September 30, 2025. Our average economic cost of funds was 106 bps below the average one-month SOFR and 112 bps below the average six-month SOFR for the quarter ended September 30, 2025. The average term to maturity of the outstanding repurchase agreements was 39 days at September 30, 2025 and 26 days at December 31, 2024.
Previous wording
The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and average one-month and six-month SOFR rates for the six months ended June 30, 2025 and 2024, and for each quarter in 2025 to date and 2024, on both a GAAP and economic basis.
Current wording
The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and average one-month and six-month SOFR rates for the nine months ended September 30, 2025 and 2024, and for each quarter in 2025 to date and 2024, on both a GAAP and economic basis.
Previous wording
The table below presents our gains or losses for the six and three months ended June 30, 2025 and 2024.
Current wording
The table below presents our gains or losses for the nine and three months ended September 30, 2025 and 2024.
Previous wording
We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from sales. However, we have sold, and may continue to sell, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy. During the six months ended June 30, 2025, we received proceeds of $733.9 million from sales of RMBS, resulting in losses of approximately $9.3 million. During the six months ended June 30, 2024, we received proceeds of $221.7 million from sales of RMBS. The 2024 sales consisted entirely of pools that were consolidated into a larger pool and simultaneously acquired by us. No gain or loss was recorded on this resecuritization.
Current wording
We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from sales. However, we have sold, and may continue to sell, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy. During the nine months ended September 30, 2025, we received proceeds of $733.9 million from sales of RMBS, resulting in losses of approximately $9.3 million. During the nine months ended September 30, 2024, we received proceeds of $288.2 million from sales of RMBS, resulting in gains of approximately $0.5 million. Approximately $221.7 million of the 2024 proceeds consisted of pools that were consolidated into a larger pool and simultaneously acquired by us. No gain or loss was recorded on this resecuritization.
Previous wording
For the six and three months ended June 30, 2025, the Company’s total operating expenses were approximately $9.2 million, and $5.0 million, respectively, compared to approximately $8.1 million and $4.4 million for the six and three months ended June 30, 2024. The table below presents a breakdown of operating expenses for the six and three months ended June 30, 2025 and 2024.
Current wording
For the nine and three months ended September 30, 2025, the Company’s total operating expenses were approximately $14.7 million, and $5.4 million, respectively, compared to approximately $12.4 million and $4.3 million for the nine and three months ended September 30, 2024. The table below presents a breakdown of operating expenses for the nine and three months ended September 30, 2025 and 2024.
Previous wording
As of December 31, 2024 and 2023, the Company had accrued a liability of $0.6 million for bonuses to be paid to the Manager's employees. During the six months ended June 30, 2025 and 2024, the Company awarded shares of Company common stock with a fair value of $0.2 million and $0.3 million, respectively. Accrued incentive compensation for the six months ended June 30, 2025 and 2024 includes a reversal of the over accrual of this liability.
Current wording
As of December 31, 2024 and 2023, the Company had accrued a liability of $0.6 million for bonuses to be paid to the Manager's employees. During the nine months ended September 30, 2025 and 2024, the Company awarded shares of Company common stock with a fair value of $0.2 million and $0.3 million, respectively. Accrued incentive compensation for the nine months ended September 30, 2025 and 2024 includes a reversal of the over accrual of this liability.
Previous wording
The following table summarizes the management fee and overhead allocation expenses for the six months ended June 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Current wording
The following table summarizes the management fee and overhead allocation expenses for the nine months ended September 30, 2025 and 2024, and for each quarter in 2025 to date and 2024.
Previous wording
As of June 30, 2025, our RMBS portfolio consisted of $7.0 billion of Agency RMBS at fair value and had a weighted average coupon on assets of 5.42%. During the six months ended June 30, 2025, we received principal repayments of $332.2 million, compared to $172.6 million for the six months ended June 30, 2024. The average three month prepayment speeds for the quarters ended June 30, 2025 and 2024 were 10.1% and 7.6%, respectively.
Current wording
As of September 30, 2025, our RMBS portfolio consisted of $8.4 billion of Agency RMBS at fair value and had a weighted average coupon on assets of 5.49%. During the nine months ended September 30, 2025, we received principal repayments of $544.9 million, compared to $310.3 million for the nine months ended September 30, 2024. The average three month prepayment speeds for the quarters ended September 30, 2025 and 2024 were 10.1% and 8.8%, respectively.
Previous wording
The following table presents a summary of portfolio assets acquired during the six months ended June 30, 2025 and 2024, including securities purchased during the period that settled after the end of the period, if any.
Current wording
The following table presents a summary of portfolio assets acquired during the nine months ended September 30, 2025 and 2024, including securities purchased during the period that settled after the end of the period, if any.
Previous wording
As of June 30, 2025, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 24 of these counterparties. None of these lenders are affiliated with the Company. These borrowings are secured by the Company’s RMBS and cash, and bear interest at prevailing market rates. We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs.
Current wording
As of September 30, 2025, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 26 of these counterparties. None of these lenders are affiliated with the Company. These borrowings are secured by the Company’s RMBS and cash, and bear interest at prevailing market rates. We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs.
Previous wording
As of June 30, 2025, we had obligations outstanding under the repurchase agreements of approximately $6.7 billion with a net weighted average borrowing cost of 4.48%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 8 to 136 days, with a weighted average remaining maturity of 35 days. Securing the repurchase agreement obligations as of June 30, 2025 are RMBS with an estimated fair value, including accrued interest, of approximately $7.0 billion, and cash pledged to counterparties of approximately $7.9 million. Through July 25, 2025, we have been able to maintain our repurchase facilities with comparable terms to those that existed at June 30, 2025, with maturities through November 13, 2025.
Current wording
As of September 30, 2025, we had obligations outstanding under the repurchase agreements of approximately $8.0 billion with a net weighted average borrowing cost of 4.33%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 8 to 356 days, with a weighted average remaining maturity of 39 days. Securing the repurchase agreement obligations as of September 30, 2025 are RMBS with an estimated fair value, including accrued interest, of approximately $8.4 billion, and cash pledged to counterparties of approximately $26.4 million. Through October 24, 2025, we have been able to maintain our repurchase facilities with comparable terms to those that existed at September 30, 2025, with maturities through September 21, 2026.
Previous wording
We use two primary measures of leverage. Economic leverage is calculated by dividing the sum of total liabilities and our net notional TBA position, by stockholders' equity. We include our net TBA position in our calculation of economic leverage because a forward contract to purchase or sell an Agency RMBS in the TBA market carries similar risks to an Agency RMBS purchased or sold in the cash market and funded with repurchase agreement liabilities. Adjusted leverage is calculated by dividing our repurchase agreements by stockholders' equity. Our economic leverage as of June 30, 2025 was 7.3 to 1, compared to 7.3 to 1 as of December 31, 2024. Our adjusted leverage as of June 30, 2025 was 7.3 to 1, compared to 7.5 to 1 as of December 31, 2024. The following table presents information related to our historical leverage.
Current wording
We use two primary measures of leverage. Economic leverage is calculated by dividing the sum of total liabilities and our net notional TBA position, by stockholders' equity. We include our net TBA position in our calculation of economic leverage because a forward contract to purchase or sell an Agency RMBS in the TBA market carries similar risks to an Agency RMBS purchased or sold in the cash market and funded with repurchase agreement liabilities. Adjusted leverage is calculated by dividing our repurchase agreements by stockholders' equity. Our economic leverage as of September 30, 2025 was 7.4 to 1, compared to 7.3 to 1 as of December 31, 2024. Our adjusted leverage as of September 30, 2025 was 7.4 to 1, compared to 7.5 to 1 as of December 31, 2024. The following table presents information related to our historical leverage.
Previous wording
Under our repurchase agreement funding arrangements, we are required to post margin at the initiation of the borrowing. The margin posted represents the haircut, which is a percentage of the market value of the collateral pledged. To the extent the market value of the asset collateralizing the financing transaction declines, the market value of our posted margin will be insufficient, and we will be required to post additional collateral. Conversely, if the market value of the asset pledged increases in value, we would be over collateralized and we would be entitled to have excess margin returned to us by the counterparty. Our lenders typically value our pledged securities daily to ensure the adequacy of our margin and make margin calls as needed, as do we. Typically, but not always, the parties agree to a minimum threshold amount for margin calls so as to avoid the need for nuisance margin calls on a daily basis. Our master repurchase agreements do not specify the haircut; rather haircuts are determined on an individual repo transaction basis. Throughout the six months ended June 30, 2025, haircuts on our pledged collateral remained stable and as of June 30, 2025, our weighted average haircut was approximately 4.1% of the value of our collateral.
Current wording
Under our repurchase agreement funding arrangements, we are required to post margin at the initiation of the borrowing. The margin posted represents the haircut, which is a percentage of the market value of the collateral pledged. To the extent the market value of the asset collateralizing the financing transaction declines, the market value of our posted margin will be insufficient, and we will be required to post additional collateral. Conversely, if the market value of the asset pledged increases in value, we would be over collateralized and we would be entitled to have excess margin returned to us by the counterparty. Our lenders typically value our pledged securities daily to ensure the adequacy of our margin and make margin calls as needed, as do we. Typically, but not always, the parties agree to a minimum threshold amount for margin calls so as to avoid the need for nuisance margin calls on a daily basis. Our master repurchase agreements do not specify the haircut; rather haircuts are determined on an individual repo transaction basis. Throughout the nine months ended September 30, 2025, haircuts on our pledged collateral remained stable and as of September 30, 2025, our weighted average haircut was approximately 4.1% of the value of our collateral.
Previous wording
In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of June 30, 2025, we had cash and cash equivalents of $440.8 million. We generated cash flows of $486.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $6.1 billion during the six months ended June 30, 2025.
Current wording
In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of September 30, 2025, we had cash and cash equivalents of $583.9 million. We generated cash flows of $793.9 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $6.5 billion during the nine months ended September 30, 2025.
Previous wording
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.
Current wording
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of gross proceeds from the sales of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.
Previous wording
On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 30,513,253 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million and net proceeds of approximately $245.8 million, after commissions and fees, prior to its termination in February 2025.
Current wording
On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of gross proceeds from the sales of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 30,513,253 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million and net proceeds of approximately $245.8 million, after commissions and fees, prior to its termination in February 2025.
Previous wording
On February 24, 2025, we entered into an equity distribution agreement (the “February 2025 Equity Distribution Agreement”) with four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $350,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through June 30, 2025, we issued a total of 34,355,086 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $265.4 million, and net proceeds of approximately $261.2 million, after commissions and fees. Subsequent to June 30, 2025, we issued a total of 162,498 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $1.2 million, and net proceeds of approximately $1.2 million, after commissions and fees.
Current wording
On February 24, 2025, we entered into an equity distribution agreement (the “February 2025 Equity Distribution Agreement”) with four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $350,000,000 of gross proceeds from the sales of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. On July 28, 2025, the February 2025 Equity Distribution Agreement was amended to increase the aggregate amount of gross proceeds from the sales of shares that may be offered by $150,000,000 to a total of $500,000,000. Through September 30, 2025, we issued a total of 56,019,745 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $420.2 million, and net proceeds of approximately $413.5 million, after commissions and fees. Subsequent to September 30, 2025, we issued a total of 3,472,759 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $25.0 million, and net proceeds of approximately $24.6 million, after commissions and fees.
Previous wording
The Agency RMBS index generated a return for the second quarter of 1.1% and a return of -0.3% versus comparable duration swaps, as compared to 1.8% and 0.5%, respectively for these measures, for the investment grade corporate index, and 3.6% and 2.0%, respectively for these measures, for high yield debt. Total returns for U.S. Treasury securities and most sectors of the fixed income markets generated positive total returns for the quarter, although excess returns, aside from Treasuries, versus comparable duration swaps were mixed.
Current wording
The Agency RMBS index generated a return for the third quarter of 2.4% and a return of 1.2% versus comparable duration swaps, as compared to 2.7% and 1.5%, respectively for these measures, for the investment grade corporate index, and 2.4% and 1.3%, respectively for these measures, for high yield debt. Total returns for U.S. Treasury securities and most sectors of the fixed income markets generated positive total returns and excess returns versus comparable duration swaps for the third quarter.
Previous wording
Within Agency RMBS for the second quarter of 2025, conventional 30-year mortgages generated a total return of 1.0%, 15-year mortgages generated a total return of 1.8% and Ginnie Mae 30-year mortgages generated a total return of 1.1%. Versus comparable duration swaps the returns were -0.3%, 0.3% and -0.3% for 30-year conventional, 15-year conventional and Ginnie Mae 30-year mortgages, respectively. The Company invests predominantly in 30-year conventional mortgages. Returns with the 30-year stack of coupons were correlated with the duration of the respective securities, as lower coupon, longer duration bonds generated the lowest total returns and the highest coupon – 7.0% - generated the highest total returns. The range for the lower portion of the coupon stack was 0.0% to 1.4% (for coupons up to 4.5%) and 1.4% to 1.9% for higher coupons. Excess returns versus comparable duration swaps were inversely related to coupons, as the higher coupons generated excess returns as high as 0.7% but excess returns for lower coupons were generally between -0.8% and -0.1%.
Current wording
Within Agency RMBS for the third quarter of 2025, conventional 30-year mortgages generated a total return of 2.6%, 15-year mortgages generated a total return of 1.5% and Ginnie Mae 30-year mortgages generated a total return of 2.2%. Versus comparable duration swaps, the returns were 1.4%, 0.4% and 1.0% for 30-year conventional, 15-year conventional and Ginnie Mae 30-year mortgages, respectively. The Company invests predominantly in 30-year conventional mortgages. Because of the prospect of higher prepayment speeds and their negative effects on realized yields, higher coupon and premium dollar price Agency RMBS generated returns that lagged all lower coupons. Absolute returns within the 30-year stack of coupons ranged between 3.1% and 2.5% for par and lower dollar price Agency RMBS, and generally followed the durations of the Agency RMBS, with high duration/lower coupon Agency RMBS generating the highest returns. Agency RMBS with premium prices ranged from 2.3% to 0.7%, again with the longest duration/lowest coupons generating the highest returns. Versus comparable duration swaps, excess returns followed a similar pattern with the exception of the 4.0 and 4.5% coupons generating excess returns higher than surrounding coupon Agency RMBS – the result of market technical developments (a shortage of available bonds versus demand) that emerged during the third quarter. The range of excess returns across the coupon stack ranged from 1.9% for 2.0% coupons to 0.4% for 6.5% securities, and 7.0% securities had a negative excess return of -0.5%.
Previous wording
In response to the deterioration in the markets for U.S. Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month. In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet. In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing its balance sheet by a maximum of $60 billion of U.S. Treasuries and $35 billion of Agency RMBS per month. On May 1, 2024, the FOMC announced the Fed’s decision to reduce its balance sheet by a maximum of $25 billion of U.S. Treasury securities and remove the cap on Agency RMBS reduction, with any amounts in excess of $35 billion per month being reinvested in U.S. Treasury securities. On March 19, 2025, the FOMC announced the Fed's decision to reduce its balance sheet by a maximum of $5 billion of U.S. Treasury securities beginning April 1, 2025. Relatively high interest rates and slow prepayment speeds have kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and the second quarter of 2025. As of June 30, 2025, the Fed had reduced its balance sheet for Agency RMBS by approximately $602 billion from the peak to $2.2 trillion, shedding approximately 44% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since March 2021.
Current wording
In response to the deterioration in the markets for U.S. Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month. In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet. In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing its balance sheet by a maximum of $60 billion of U.S. Treasuries and $35 billion of Agency RMBS per month. On May 1, 2024, the FOMC announced the Fed’s decision to reduce its balance sheet by a maximum of $25 billion of U.S. Treasury securities and remove the cap on Agency RMBS reduction, with any amounts in excess of $35 billion per month being reinvested in U.S. Treasury securities. On March 19, 2025, the FOMC announced the Fed's decision to reduce its balance sheet by a maximum of $5 billion of U.S. Treasury securities beginning April 1, 2025. Relatively high interest rates and slow prepayment speeds have kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and the third quarter of 2025. As of September 30, 2025, the Fed had reduced its balance sheet for Agency RMBS by approximately $654 billion from the peak to $2.1 trillion, shedding approximately 49% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since February 2021. In remarks on October 14, 2025, Fed Chairman Jerome Powell signaled that the Fed may end its balance sheet runoff in the coming months.
Previous wording
On September 14, 2021, the U.S. Treasury and the FHFA suspended certain policy provisions in the Enterprise capital framework established in December 2020, including limits on loans acquired for cash consideration, multifamily loans, loans with higher risk characteristics and second homes and investment properties (the "September 2021 Provisions"). Effective April 26, 2022, the FHFA further amended this framework by, among other things, replacing the fixed leverage buffer equal to 1.5% of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50% of an Enterprise’s stability capital buffer, reducing the risk weight floor from 10% to 5%, and removing the requirement that the Enterprises must apply an overall effectiveness adjustment to their credit risk transfer exposures. On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security and negatively impacted liquidity and pricing in the market for TBA securities. On November 30, 2023, the FHFA published a final rule, which became effective April 1, 2024, which reduced the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively; replaced the current exposure methodology with the standardized approach for counterparty credit risk as the method for computing exposure and risk-weighted asset amounts for derivatives and cleared transactions; updated the credit score assumption to 680 for single-family mortgage exposures originated without a representative credit score; and introduced a risk weight of 20% for guarantee assets. On January 2, 2025, the U.S. Treasury and FHFA entered into a letter agreement deleting the September 2021 Provisions entirely, as well as providing additional guidance on the process for a potential end to the conservatorship of the Enterprises. In March 2025, the Trump administration's nominee for FHFA director, Bill Pulte, was confirmed and replaced 14 board members at the Enterprises. Although this led to some speculation in the market regarding an end to conservatorship, the new FHFA director signaled a more cautious approach, stating that significant study on the impact to mortgage rates would need to be done prior to any privatization of the Enterprises.
Current wording
On September 14, 2021, the U.S. Treasury and the FHFA suspended certain policy provisions in the Enterprise capital framework established in December 2020, including limits on loans acquired for cash consideration, multifamily loans, loans with higher risk characteristics and second homes and investment properties (the "September 2021 Provisions"). Effective April 26, 2022, the FHFA further amended this framework by, among other things, replacing the fixed leverage buffer equal to 1.5% of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50% of an Enterprise’s stability capital buffer, reducing the risk weight floor from 10% to 5%, and removing the requirement that the Enterprises must apply an overall effectiveness adjustment to their credit risk transfer exposures. On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security and negatively impacted liquidity and pricing in the market for TBA securities. On November 30, 2023, the FHFA published a final rule, which became effective April 1, 2024, which reduced the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively; replaced the current exposure methodology with the standardized approach for counterparty credit risk as the method for computing exposure and risk-weighted asset amounts for derivatives and cleared transactions; updated the credit score assumption to 680 for single-family mortgage exposures originated without a representative credit score; and introduced a risk weight of 20% for guarantee assets. On January 2, 2025, the U.S. Treasury and FHFA entered into a letter agreement deleting the September 2021 Provisions entirely, as well as providing additional guidance on the process for a potential end to the conservatorship of the Enterprises. In March 2025, the Trump administration's nominee for FHFA director, Bill Pulte, was confirmed and replaced 14 board members at the Enterprises. Although this led to some speculation in the market regarding an end to conservatorship, the new FHFA director signaled a more cautious approach, stating that significant study on the impact to mortgage rates would need to be done prior to any privatization of the Enterprises. During the third quarter of 2025, the Trump administration signaled an intention to begin the privatization of the Enterprises through an initial public offering, but did not announce that they have taken any formal steps towards such an offering.
Previous wording
On July 27, 2023, the federal banking regulators, including the Office of the Comptroller of the Currency, (the "OCC") the FDIC and the Fed, jointly issued a proposed rule that would revise large bank capital requirements (the "Basel III Endgame"). The Basel III Endgame, if implemented as originally proposed, would significantly increase the credit weight risk for balance-sheet mortgages and for Agency RMBS sold to the GSEs, which could disincentivize banks from originating mortgages for sale to the GSEs and impact pricing in the Agency RMBS markets. The comment period for the Basel III Endgame closed on January 16, 2024, and the proposed rule was met with strong objections from the banking industry. While implementation of the Basel III Endgame has since stalled, Fed chairman Jerome Powell testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs in June 2025 that the Fed was making a “fresh start” in reworking the Basel III Endgame. On June 27, 2025, the Fed, OCC and FDIC jointly issued a proposed rule to revise the enhanced supplementary leverage ratio for globally systemically important bank holding companies (“GSIBs”), with comments open to the public until August 26, 2025. The proposed rule seeks to promote effective GSIB capital management and remove disincentives for banks to engage in low-risk activities, particularly in the U.S. Treasury market. This shift is expected to free up significant capital, allowing GSIBs greater discretion in asset allocation and potentially fostering increased lending and economic activity.
Current wording
On July 27, 2023, the federal banking regulators, including the Office of the Comptroller of the Currency, (the "OCC") the FDIC and the Fed, jointly issued a proposed rule that would revise large bank capital requirements (the "Basel III Endgame"). The Basel III Endgame, if implemented as originally proposed, would significantly increase the credit weight risk for balance-sheet mortgages and for Agency RMBS sold to the GSEs, which could disincentivize banks from originating mortgages for sale to the GSEs and impact pricing in the Agency RMBS markets. The comment period for the Basel III Endgame closed on January 16, 2024, and the proposed rule was met with strong objections from the banking industry. While implementation of the Basel III Endgame has since stalled, Fed Vice Chair for Supervision Michelle Bowman commented in August 2025 that a revised Basel III Endgame is expected to be issued for public comment in early 2026, which the market expects to be more capital-neutral than the original proposal. On June 27, 2025, the Fed, OCC and FDIC jointly issued a proposed rule to revise the enhanced supplementary leverage ratio for globally systemically important bank holding companies (“GSIBs”), with comments open to the public until August 26, 2025. The proposed rule seeks to promote effective GSIB capital management and remove disincentives for banks to engage in low-risk activities, particularly in the U.S. Treasury market. This shift is expected to free up significant capital, allowing GSIBs greater discretion in asset allocation and potentially fostering increased lending and economic activity.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
We had average outstanding borrowings of $6.5 billion and $4.2 billion and total interest expense of $212.0 million and $172.4 million for the nine months ended September 30, 2025 and 2024, respectively. Our average cost of funds was 4.33% for the nine months ended September 30, 2025, compared to 5.51% for the comparable period in 2024.