Orchid Island Capital, Inc.
For the period ended Jun 30, 2026. Filed Jul 24, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Jul 24, 2026
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 2026-03-31; filed 2026-04-24.
0001437749-26-013290
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-07-24.
0001437749-26-024400
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 131 previous paragraphs and 135 current paragraphs.
85 unchanged; 38 reworded; 11 added; 7 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 51 previous and 51 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 (11)
Current report
On June 22, 2026, the Board of Directors approved an increase in the number of shares of the Company’s common stock available in the stock repurchase program for up to an additional 25,000,000 shares, bringing the remaining authorization under the stock repurchase program to 26,612,580 shares, representing approximately 13.3% of the Company’s currently outstanding shares of common stock.
Current report
Net Income (Loss) Summary
Current report
On an economic basis, our interest expense on borrowings for the six months ended June 30, 2026 and 2025 was $177.4 millionand $88.7 million, respectively, resulting in $144.6 millionand $84.7 millionof economic net interest income, respectively.
Current report
We had average outstanding borrowings of $10,733.0 million and $6,129.7 million and total interest expense of$205.0 millionand$130.5 millionfor thesix months ended June 30, 2026 and 2025, respectively. Our average cost of funds was 3.82% for thesix months ended June 30, 2026, compared to 4.26% for the comparable period in 2025.
Current report
Our economic interest expense was$177.4 millionand $88.7 million for thesix months ended June 30, 2026 and 2025, respectively. There was a 42 bps increase in the average economic cost of funds to 3.31% for thesix months ended June 30, 2026, from 2.89% for thesix months ended June 30, 2025.
Current report
The second quarter of 2026 was pivotal in many ways. The Federal Reserve (“Fed”) transitioned from an easing bias to a hiking bias and a new Fed Chairman with a strong anti-inflation disposition was seated. Meanwhile, the war between the United States, Israel and Iran (the “Iran War”) appeared to be on course to wind down by June before conditions deteriorated materially. A near-term resolution now appears unlikely, allowing energy related inflationary pressures to persist.
Current report
On May 22, 2026, Kevin Warsh became the new Chairman of the Fed, replacing Jerome Powell as Chairman. The new Chairman brings an elevated level of vigor in addressing the persistently high inflation that has exceeded the Fed’s 2% target for approximately 5 years. Even before Chairman Warsh assumed his new role, the FOMC appeared to be shifting its bias away from additional easing toward hiking. At the Fed’s meeting on April 29, 2026, there were three votes in favor of signaling a more two-side characterization of the Fed’s future interest rate decisions. At Chairman Warsh’s first press conference on June 17, 2026, all doubt regarding the bias of the FOMC was put to rest. The new Chairman was very stern in declaring his highest priority was bringing inflation back to the Fed’s target.
Current report
The Iran War appeared to be nearing conclusion when a ceasefire was announced on April 8, 2026, and a formal Memorandum of Understanding (“MOU”) was signed by the parties on June 17, 2026. Shipping traffic through the Strait of Hormuz (“SOH”) was slowly returning to pre-war levels, and market volatility materially subsided. However, shortly after the MOU was signed, hostilities between the parties began to escalate and shipping traffic through the SOH has slowed significantly again. Commodity prices have rebounded in turn and are slowly heading back toward the peak levels reached in the early days of the war. At this point, there is no obvious path to an end to the war, as the two crucial points of disagreement – control over the SOH and the status of Iran’s nuclear capability – seem unlikely to be resolved diplomatically. Unless and until the war pivots again toward a peaceful resolution, upward pressure on commodity prices seems likely to persist, adding to already elevated levels of inflation in the United States and globally.
Current report
Developments in the Iran War have only exacerbated problems for the new Fed Chair and the FOMC. The economy in the United States has proven to be very resilient in the face of inflation, particularly elevated commodity prices and disruptions to critical supply channels. At the beginning of 2026, the labor market appeared to be stable, yet at low levels of job growth. During the second quarter of 2026, the labor market appeared to pivot as job growth rebounded. Consumer spending has also remained robust. If the war remains unresolved for an extended period, the Fed will likely need to act and increase the Fed Funds rate. Data for June 2026 released in July – namely the jobs report and the consumer price index and producer price index – were all weak. As a result, market pricing of Fed hikes over the balance of 2026 and into 2027 has subsided. Unless this data remains weak, the market is likely to see higher funding levels.
Current report
Consistent with the pivot in the outlook for Fed policy during the quarter, the nominal rates curve moved higher and flatter during the second quarter of 2026. Specifically, the yield on the 2-year U.S. Treasury note increased from 3.796% at March 31, 2026 to 4.175% at June 30, 2026, while the yield on the 10-year U.S. Treasury note increased from 4.319% at March 31, 2026 to 4.466% at June 30, 2026. As a result, the curve between these two points flattened by approximately 9 basis points. Most proxies for the shape of the rates curve show comparable – or greater – levels of flattening during the second quarter of 2026. The primary impetus for the movements in the nominal U.S. Treasury curve and the swap curve was the pivot in market expectations for Fed Funds rate going forward. At March 31, 2026, market expectations for the Fed Funds rate (based on Fed Funds futures contracts) were for slightly more than one rate cut by year end and two cuts by mid-2027. By the end of the second quarter of 2026, Fed Funds futures implied nearly two hikes by year-end and in excess of three hikes by the end of first quarter of 2027. Current pricing, reflecting the soft June 2026 data released in early July, is unchanged in terms of year-end levels but now reflects very modest cuts in early 2027.
Current report
Interest rate volatility spiked meaningfully after the outbreak of the Iran War, consistent with the increase in interest rates across the curve. Volatility peaked just before the first quarter of 2026 ended, with the Merrill Lynch Option Volatility Estimate Index reaching 115.02. Following the announcement of a ceasefire on April 8, 2026, rate volatility dropped nearly to pre-war levels by mid-April and remained relatively stable throughout the balance of the second quarter. Implied interest rate volatility has remained range bound at low levels since the end of the second quarter. As is typically the case, subdued levels of implied interest rate volatility and range-bound interest rates are conducive to Agency RMBS market performance, and the sector had a positive quarter in both absolute and excess returns. For the second quarter of 2026, the Agency RMBS sector generated a total return of 0.6% and 0.5% versus comparable duration swaps. By comparison, the high-yield and investment-grade corporate bond sectors produced returns of 2.5% and 1.4%, respectively, and excess returns of 2.4% and 1.5%, respectively, versus comparable duration swaps over the same period.
Removed paragraphs (7)
Previous report
Net (Loss) Income Summary
Previous report
We invest a portion of our capital in structured Agency RMBS. We generally do not apply leverage to this portion of our portfolio. The leverage inherent in structured securities replaces the leverage obtained by acquiring PT securities and funding them in the repurchase market. However, we have and may continue to pledge a portion of our structured RMBS in order to raise our cash levels, but generally will not pledge these securities in order to acquire additional assets.
Previous report
Economic developments during the first quarter of 2026 were to a large extent a continuation of 2025, with inflation stubbornly above the Fed’s target of 2%, the labor market stable, and growth and spending holding up. There was also considerable uncertainty surrounding the two primary focus points of the Fed – inflation and the labor market. The impact of tariffs implemented in 2025 had not materially impacted goods prices, and it was unclear whether they would, and to what extent. The Trump administration’s crack down on immigration has meaningfully slowed labor market growth, and economists suspect the current base line growth rate of the labor market is at or close to zero. Both of these factors make it difficult for economists and Fed officials to interpret economic data and ascertain the appropriate path, or level, of monetary policy. Consequently, the Fed has held monetary policy stable and guided that they will continue assessing incoming data over time to determine what changes, if any are needed.
Previous report
Additional factors that could affect the economy emerged over the course of the quarter. The first was apparent strains in the private credit markets. These first emerged in 2025, but intensified materially during the first quarter of 2026 – predominantly as developments in artificial intelligence were viewed as a threat to software developers. Coincidentally, the market feared the tens of billions of dollars of spending on data centers throughout the country and world announced in recent months by the country’s largest technology companies could lead to overcapacity. The weakness in the private credit markets spilled over into the broader equity markets, and most major market indices were down for the year by mid-single percentage points through late February, with software related companies down multiples of that.
Previous report
On February 28, 2026, the United States and Israel attacked Iran and began the current war that has materially disrupted the supply and production of oil in the Persian Gulf region, among other important commodities needed for the global economy. Financial markets immediately reflected higher interest rates, equity markets declined and commodity prices rose, especially the price of oil, which jumped to over $100 per barrel. Markets initially expected the war to be brief and the disruptions to the supply of oil and market turmoil to end quickly. This has not proved to be the case. With respect to domestic markets in the United States, the immediate impact has been inflationary, and headline inflation readings are expected to be elevated while the war lasts. Market pricing of Fed monetary policy adjustment quickly shifted from possibly one or two more interest rate cuts in 2026 to a possible hike before year end. As the war has continued, the market now expects the effect of the war may become more growth oriented, and longer-term rates have declined back to levels seen at year-end 2025. The ultimate outcome of the war remains unclear at this point, but what is very clear is the uncertainty surrounding the Fed and its pursuit of its dual mandates has become even more challenging.
Previous report
While interest rates across the U.S. Treasury curve had been remarkably stable for most of 2025, especially the latter half of the year, interest rate volatility increased during the first quarter of 2026 and into the second quarter. While the range of the yield on the 10-year U.S. Treasury and other maturities outside of the 2-year U.S. Treasury have expanded, yields have remained within the new range throughout the year. Implied interest rate volatility in the rate options market spiked at the onset of the Iranian war, but has since retraced most of the upward spike. Shorter maturity U.S. Treasuries, those most sensitive to monetary policy, have increased as the market no longer anticipates additional interest rate cuts by the Fed. Prior to the outbreak of the war, the market was anticipating at least two 25-basis point cuts in the Fed Funds rate by the end of 2026, with additional cuts priced in for 2027. By the end of the first quarter, market pricing was approximately one-quarter of one 25-basis point cut by the end of 2026.
Previous report
The Agency RMBS market had a strong start to the quarter as both absolute and relative performance versus comparable duration U.S. Treasuries and swaps. On January 8, 2026, President Trump announced plans for the Enterprises to purchase up to $200 billion of Agency RMBS in 2026 in an effort to drive mortgage rates down and improve housing affordability. The market reacted strongly to the news, and the current coupon spread tightened to approximately 74 basis points, the tightest level since early 2022 when the Fed was still buying Agency RMBS under its quantitative easing program. The anticipated increase in purchases by the Enterprises resulted in an immediate outperformance of the sector. Subsequently, the Iranian war commenced on February 28, 2026, and negatively impacted the performance of the Agency RMBS sector, as well all risk markets generally, for the month of March 2026. The Agency RMBS market had a -1.6% return for March and an excess return of -0.3% versus comparable duration swaps. For the first quarter of 2026, the Agency RMBS sector still managed to generate a positive return of 0.6%, but versus comparable durations swaps, the return was only 0.02%. The returns compare to absolute returns of -0.6% and -0.4%, respectively, for the high yield and investment grade corporate bond sectors for the first quarter of 2026, and 0.1% and 1.4%, respectively, of excess returns versus comparable duration swaps for the quarter.
Reworded paragraphs (38)
Previous wording
Our business objective is to provide attractive risk-adjusted total returns over the long term through a combination of capital appreciation and the payment of regular monthly distributions. We intend to achieve this objective by investing in the two categories of Agency RMBS described above. We seek to generate income from (i) the net interest margin on our leveraged PT RMBS portfolio and the leveraged portion of our structured Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged portion of our structured Agency RMBS portfolio. We intend to fund our PT RMBS and certain of our structured Agency RMBS through short-term borrowings structured as repurchase agreements.
Current wording
Our business objective is to provide attractive risk-adjusted total returns over the long term through a combination of capital appreciation and the payment of regular monthly distributions. We intend to achieve this objective by investing in the two categories of Agency RMBS described above. We seek to generate income from the net interest margin on our leveraged PT RMBS and structured Agency RMBS portfolio. We intend to fund our PT RMBS and structured Agency RMBS through short-term borrowings structured as repurchase agreements.
Previous wording
On October 27, 2025, we entered into an equity distribution agreement (the “October 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 $500,000,000 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. From inception through March 31, 2026, we issued a total of 44,824,644 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $332.7 million, and net proceeds of approximately $327.5 million, after commissions and fees. For the three months ended March 31, 2026, we issued a total of 14,558,681 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $109.5 million, and net proceeds of approximately $107.8 million, after commissions and fees. Subsequent to March 31, 2026, we issued a total of 4,000,000 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $28.2 million, and net proceeds of approximately $27.8 million, after commissions and fees.
Current wording
On October 27, 2025, we entered into an equity distribution agreement (the “October 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 $500,000,000 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. From inception through June 30, 2026, we issued a total of 48,824,644 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $360.9 million, and net proceeds of approximately $355.2 million, after commissions and fees. For the six months ended June 30, 2026, we issued a total of 18,558,681 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $137.7 million, and net proceeds of approximately $135.5 million, after commissions and fees.
Previous wording
From the inception of the stock repurchase program through March 31, 2026, 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. The Company did not repurchase any shares during thethree months ended March 31, 2026. During the year ended December 31, 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. The remaining authorization under the stock repurchase program as of April 23, 2026 was 2,719,137 shares.
Current wording
From the inception of the stock repurchase program through June 30, 2026, the Company repurchased a total of 7,364,383 shares at an aggregate cost of approximately $92.1 million, including commissions and fees, for a weighted average price of $12.51 per share. During thesix and three months ended June 30, 2026, the Company repurchased a total of 1,106,557 shares at an aggregate cost of approximately $7.3 million, including commissions and fees, for a weighted average price of $6.64 per share. During the year ended December 31, 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. The remaining authorization under the stock repurchase program as of July 23, 2026 was 26,612,580 shares.
Previous wording
Described below are the Company’s results of operations for the three months ended March 31, 2026, as compared to the Company’s results of operations for the three months ended March 31, 2025.
Current wording
Described below are the Company’s results of operations for the six and three months ended June 30, 2026, as compared to the Company’s results of operations for the six and three months ended June 30, 2025.
Previous wording
Net loss for thethree months ended March 31, 2026 was $20.0 million, or $0.11 per share. Net income for thethree months ended March 31, 2025 was $17.1 million, or $0.18 per share. The components of net (loss) income for thethree months ended March 31, 2026 and 2025, along with the changes in those components are presented in the table below:
Current wording
Net income for thesix months ended June 30, 2026 was $69.2 million, or $0.35 per share. Net loss for thesix months ended June 30, 2025 was $16.5 million, or $0.16 per share. Net income for thethree months ended June 30, 2026 was $89.2 million, or $0.44 per share. Net loss for thethree months ended June 30, 2025 was $33.6 million, or $0.29 per share. The components of net income (loss) for thesix and three months ended June 30, 2026 and 2025, 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 each quarter in 2026 to date and 2025.
Current wording
Described below are the Company’s results of operations for the six months ended June 30, 2026 and 2025, and for each quarter in 2026 to date and 2025.
Previous wording
During the three months ended March 31, 2026, we earned net interest income of$57.1 million consisting of$157.8 million of interest income from RMBS assets offset by$100.8 million of interest expense on borrowings. For the comparable period ended March 31, 2025, we earned$19.7 million of net interest income, consisting of$81.1 million of interest income from RMBS assets offset by$61.4 million of interest expense on borrowings. The$76.7 million increase in interest income was due to a 34 basis point ("bp")increase in the yield on average RMBS, combined with a $4,987.9 million increase in average RMBS. The$39.4 million increase in interest expense was due to a$4,768.0 million increase in average outstanding borrowings, offset by a 45 bpsdecrease in the average cost of funds.
Current wording
During the three months ended June 30, 2026, we earned net interest income of$60.0 million consisting of$164.2 million of interest income from RMBS assets offset by$104.2 million of interest expense on borrowings. For the comparable period ended June 30, 2025, we earned$23.2 million of net interest income, consisting of$92.3 million of interest income from RMBS assets offset by$69.1 million of interest expense on borrowings. The$71.9 million increase in interest income was due to a 36 basis point ("bp")increase in the yield on average RMBS, combined with a $4,573.6 million increase in average RMBS. The$35.1 million increase in interest expense was due to a$4,438.5 million increase in average outstanding borrowings, offset by a 43 bpsdecrease in the average cost of funds.
Previous wording
On an economic basis, our interest expense on borrowings for the three months ended March 31, 2026 and 2025 was $86.1 millionand$40.5 million, respectively, resulting in$71.7 million and$40.6 million of economic net interest income, respectively.
Current wording
On an economic basis, our interest expense on borrowings for the three months ended June 30, 2026 and 2025 was $91.3 millionand$48.2 million, respectively, resulting in$72.9 million and$44.1 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 and net interest spread for each quarter in 2026 to date and 2025 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 and net interest spread for the six months ended June 30, 2026 and 2025, and for each quarter in 2026 to date and 2025 on both a GAAP and economic basis.
Previous wording
We had average outstanding borrowings of $10,490.1 million and $5,722.1 million and total interest expense of $100.8 million and $61.4 million for the three months ended March 31, 2026 and 2025, respectively. Our average cost of funds was 3.84% for the three months ended March 31, 2026, compared to 4.29% for the comparable period in 2025.
Current wording
We had average outstanding borrowings of $10,975.8 million and $6,537.3 million and total interest expense of $104.2 million and $69.1 million for the three months ended June 30, 2026 and 2025, respectively. Our average cost of funds was 3.80% for the three months ended June 30, 2026, compared to 4.23% for the comparable period in 2025.
Previous wording
Our economic interest expense was $86.1 million and $40.5 million for the three months ended March 31, 2026 and 2025, respectively. There was a 45 bps increase in the average economic cost of funds to 3.28% for the three months ended March 31, 2026, from 2.83% for the three months ended March 31, 2025.
Current wording
Our economic interest expense was $91.3 million and $48.2 million for the three months ended June 30, 2026 and 2025, respectively. There was a 38 bps increase in the average economic cost of funds to 3.33% for the three months ended June 30, 2026, from 2.95% for the three months ended June 30, 2025.
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 19 bps above the one-month average SOFR and 2 bps below the six-month average SOFR for the quarter ended March 31, 2026. Our average economic cost of funds was 37 bps below the average one-month SOFR and 58 bps below the average six-month SOFR for the quarter ended March 31, 2026. The average term to maturity of the outstanding repurchase agreements was 46 days at March 31, 2026 and 39 days at December 31, 2025.
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 17 bps above the one-month average SOFR and 13 bps above the six-month average SOFR for the quarter ended June 30, 2026. Our average economic cost of funds was 30 bps below the average one-month SOFR and 34 bps below the average six-month SOFR for the quarter ended June 30, 2026. The average term to maturity of the outstanding repurchase agreements was 33 days at June 30, 2026 and 39 days at December 31, 2025.
Previous wording
The table below presents the one-month average and six-month average SOFR rates for each quarter in 2026 to date and 2025, on both a GAAP and economic basis.
Current wording
The table below presents the one-month average and six-month average SOFR rates for the six months ended June 30, 2026 and 2025, and for each quarter in 2026 to date and 2025.
Previous wording
The table below presents our gains or losses for the three months ended March 31, 2026 and 2025.
Current wording
The table below presents our gains or losses for the six and three months ended June 30, 2026 and 2025.
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 three months ended March 31, 2026, we received proceeds of $25.0 million from sales of RMBS, resulting in gains of approximately $39,000. During the three months ended March 31, 2025, we received proceeds of $168.6 million from sales of RMBS, resulting in losses of approximately $1.3 million.
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 six months ended June 30, 2026, we received proceeds of $356.5 million from sales of RMBS, resulting in gains of approximately $0.9 million. 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.
Previous wording
For the three months ended March 31, 2026, the Company’s total operating expenses were approximately $7.4 million, compared to approximately $4.2 million for the three months ended March 31, 2025. The table below presents a breakdown of operating expenses for the three months ended March 31, 2026 and 2025.
Current wording
For the six and three months ended June 30, 2026, the Company’s total operating expenses were approximately $14.2 million and $6.8 million, respectively, compared to approximately $9.2 million and $5.0 million for the six and three months ended June 30, 2025, respectively. The table below presents a breakdown of operating expenses for the six and three months ended June 30, 2026 and 2025.
Previous wording
As of December 31, 2025 and 2024, the Company had accrued a liability of $0.6 million for bonuses to be paid to the Manager's employees. During the three months ended March 31, 2026 and 2025, the Company awarded shares of Company common stock with a fair value of $1.7 million and $0.3 million, respectively. Accrued incentive compensation for the three months ended March 31, 2026 includes $1.1 million under accrual of this liability. Incentive compensation for the three months ended March 31, 2025 includes a reversal of the $0.4 million over accrual of this liability.
Current wording
As of December 31, 2025 and 2024, 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, 2026 and 2025, the Company awarded shares of Company common stock with a fair value of $1.7 million and $0.3 million, respectively. Accrued incentive compensation for the six months ended June 30, 2026 includes a reversal of a $1.1 million under accrual of the December 31, 2025 liability. Incentive compensation for the six months ended June 30, 2025 includes a reversal of a $0.4 million over accrual of the December 31, 2024 liability.
Previous wording
On April 1, 2022, pursuant to the third amendment to the management agreement entered into on November 16, 2021, the Manager began providing certain repurchase agreement trading, clearing and administrative services to the Company that had been previously provided by AVM, L.P. under an agreement terminated on March 31, 2022. In consideration for such services, the Company pays the following fees to the Manager:
Current wording
The Manager also provides certain repurchase agreement trading, clearing and administrative services to the Company. In consideration for such services, the Company pays the following fees to the Manager:
Previous wording
Should the Company terminate the management agreement without cause, it will pay the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the term of the agreement.
Current wording
The Company is obligated to reimburse the Manager for any direct expenses incurred on its behalf and to pay the Manager the Company’s pro rata portion of certain overhead costs set forth in the management agreement. Should the Company terminate the management agreement without cause, it will pay the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the term of the agreement.
Previous wording
The following table summarizes the management fee and overhead allocation expenses for each quarter in 2026 to date and 2025.
Current wording
The following table summarizes the management fee and overhead allocation expenses for six months ended June 30, 2026 and 2025, and for each quarter in 2026 to date and 2025.
Previous wording
As of March 31, 2026, our RMBS portfolio consisted of $11.3 billion of Agency RMBS at fair value and had a weighted average coupon on assets of 5.58%. During the three months ended March 31, 2026, we received principal repayments of $404.7 million, compared to $133.0 million for the three months ended March 31, 2025. The average three month prepayment speeds for the quarters ended March 31, 2026 and 2025 were 14.7% and 7.8%, respectively.
Current wording
As of June 30, 2026, our RMBS portfolio consisted of $11.5 billion of Agency RMBS at fair value and had a weighted average coupon on assets of 5.52%. During the six months ended June 30, 2026, we received principal repayments of $863.5 million, compared to $332.2 million for the six months ended June 30, 2025. The average three month prepayment speeds for the quarters ended June 30, 2026 and 2025 were 10.9% and 10.1%, respectively.
Previous wording
As of March 31, 2026, the Company's portfolio had an effective duration of 3.005, indicating that an interest rate increase of 1.0% would be expected to cause a 3.005% decrease in the value of the RMBS in the Company’s investment portfolio. As of December 31, 2025, the Company's portfolio had an effective duration of 2.513, indicating that an interest rate increase of 1.0% would be expected to cause a 2.513% decrease in the value of the RMBS in the Company’s investment portfolio. These figures do not include the effect of the Company’s funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.
Current wording
As of June 30, 2026, the Company's portfolio had an effective duration of 3.180, indicating that an interest rate increase of 1.0% would be expected to cause a 3.180% decrease in the value of the RMBS in the Company’s investment portfolio. As of December 31, 2025, the Company's portfolio had an effective duration of 2.513, indicating that an interest rate increase of 1.0% would be expected to cause a 2.513% decrease in the value of the RMBS in the Company’s investment portfolio. These figures do not include the effect of the Company’s funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.
Previous wording
The following table presents a summary of portfolio assets acquired during the three months ended March 31, 2026 and 2025, 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 six months ended June 30, 2026 and 2025, including securities purchased during the period that settled after the end of the period, if any.
Previous wording
As of March 31, 2026, 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 28 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 June 30, 2026, 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 33 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 March 31, 2026, we had obligations outstanding under the repurchase agreements of approximately $10.9 billion with a net weighted average borrowing cost of 3.79%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 2 to 227 days, with a weighted average remaining maturity of 46 days. Securing the repurchase agreement obligations as of March 31, 2026 are RMBS with an estimated fair value, including accrued interest, of approximately $11.3 billion, and cash pledged to counterparties of approximately $82.6 million. Through April 24, 2026, we have been able to maintain our repurchase facilities with comparable terms to those that existed at March 31, 2026, with maturities through November 13, 2026.
Current wording
As of June 30, 2026, we had obligations outstanding under the repurchase agreements of approximately $11.1 billion with a net weighted average borrowing cost of 3.77%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 2 to 136 days, with a weighted average remaining maturity of 33 days. Securing the repurchase agreement obligations as of June 30, 2026 are RMBS with an estimated fair value, including accrued interest, of approximately $11.5 billion, and cash pledged to counterparties of approximately $111.5 million. Through July 24, 2026, we have been able to maintain our repurchase facilities with comparable terms to those that existed at June 30, 2026, with maturities through November 13, 2026.
Previous wording
We use two primary measures of leverage. Economic leverage is calculated by dividing total liabilities, adjusted for our net notional TBA position and securities borrowed, 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 March 31, 2026 was 7.9 to 1, compared to 7.4 to 1 as of December 31, 2025. Our adjusted leverage as of March 31, 2026 was 7.8 to 1, compared to 7.4 to 1 as of December 31, 2025. 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 total liabilities, adjusted for our net notional TBA position and securities borrowed, 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, 2026 and December 31, 2025 was 7.3 to 1. Our adjusted leverage as of June 30, 2026 was 7.7 to 1, compared to 7.4 to 1 as of December 31, 2025. The following table presents information related to our historical leverage.
Previous wording
Our internal sources of liquidity include our cash balances, unencumbered assets and our ability to liquidate our encumbered security holdings. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio. Because our PT RMBS portfolio consists entirely of government and agency securities, we do not anticipate having difficulty converting our assets to cash should our liquidity needs ever exceed our immediately available sources of cash. Our structured RMBS portfolio also consists entirely of governmental agency securities, although they typically do not trade with comparable bid / ask spreads as PT RMBS. However, we anticipate that we would be able to liquidate such securities readily, even in distressed markets, although we would likely do so at prices below where such securities could be sold in a more stable market. To enhance our liquidity even further, we may pledge a portion of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash.
Current wording
Our internal sources of liquidity include our cash balances, unencumbered assets and our ability to liquidate our encumbered security holdings. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio. Because our PT RMBS portfolio consists entirely of government and agency securities, we do not anticipate having difficulty converting our assets to cash should our liquidity needs ever exceed our immediately available sources of cash. Our structured RMBS portfolio also consists entirely of governmental agency securities, although they typically do not trade with comparable bid / ask spreads as PT RMBS. However, we anticipate that we would be able to liquidate such securities readily, even in distressed markets, although we would likely do so at prices below where such securities could be sold in a more stable market.
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 three months ended March 31, 2026, haircuts on our pledged collateral remained stable and as of March 31, 2026, 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 six months ended June 30, 2026, haircuts on our pledged collateral remained stable and as of June 30, 2026, 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 March 31, 2026, we had cash and cash equivalents of $674.0 million. We generated cash flows of $549.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $10.4 billion during the three months ended March 31, 2026.
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 June 30, 2026, we had cash and cash equivalents of $682.6 million. We generated cash flows of $1,163.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $10.7 billion during the six months ended June 30, 2026.
Previous wording
On October 27, 2025, we entered into an equity distribution agreement (the “October 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 $500,000,000 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. From inception through March 31, 2026, we issued a total of 44,824,644 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $332.7 million, and net proceeds of approximately $327.5 million, after commissions and fees. For the three months ended March 31, 2026, we issued a total of 14,558,681 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $109.5 million, and net proceeds of approximately $107.8 million, after commissions and fees. Subsequent to March 31, 2026, we issued a total of 4,000,000 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $28.2 million, and net proceeds of approximately $27.8 million, after commissions and fees.
Current wording
On October 27, 2025, we entered into an equity distribution agreement (the “October 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 $500,000,000 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. From inception through June 30, 2026, we issued a total of 48,824,644 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $360.9 million, and net proceeds of approximately $355.2 million, after commissions and fees. For the six months ended June 30, 2026, we issued a total of 18,558,681 shares under the October 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $137.7 million, and net proceeds of approximately $135.5 million, after commissions and fees.
Previous wording
The Fed ended its quantitative tightening program, which reduced its balance sheet via the maturation of its holdings, and began reinvesting them into additional U.S. Treasury holdings on December 1, 2025. Run-off from the Agency RMBS holdings is now directed towards purchasing U.S. Treasuries. The Fed also announced its intention, via Reserve Management Purchases (“RMPs”), to grow its balance sheet over time to maintain a stable relationship between the size of its balance sheet and the economy. These steps will result in increased purchases of U.S. Treasuries by the Fed going forward, and interest rate swap spreads have widened – or become less negative – as a result. When the RMP program was first introduced, U.S. Treasury purchases were $40 billion per month, which had the added benefit of taking pressure off of the overnight funding markets, as market participants such as money-market funds had fewer options to deploy their liquidity and therefore increased the pool of available funds for the overnight repurchase agreement (“repo”) funding markets. As a result, funding levels available to the Company in the repo markets during the quarter – typically expressed as a spread over SOFR, were lower than had been the case for 2025. As is typically the case, the U.S. Treasury cash balances are elevated around the April 15 th filing deadline for individual income taxes. The Fed has reduced its RMP purchases for the balance of the filing period – typically approximately 2 months – to $25 billion per month. The market anticipates the level of purchases will go back to $40 billion per month thereafter. The reduction in monthly RMP purchases during this period is not expected to materially impact the Company’s funding levels.
Current wording
The Fed ended its quantitative tightening program, which reduced its balance sheet via the maturation of its holdings, and began reinvesting them into additional U.S. Treasury holdings on December 1, 2025. Run-off from the Agency RMBS holdings is now directed toward purchasing U.S. Treasuries. The Fed also announced its intention, via Reserve Management Purchases (“RMPs”), to grow its balance sheet over time to maintain a stable relationship between the size of its balance sheet and the economy. These steps resulted in increased purchases of U.S. Treasuries by the Fed. When the RMP program was first introduced, U.S. Treasury purchases were $40 billion per month, although they have declined since and are currently $10 billion per month. However, even at the lower level of purchases the program has been successful at taking pressure off of the overnight funding markets, as market participants such as money-market funds had fewer options to deploy their liquidity and therefore increased the pool of available funds for the overnight repurchase agreement (“repo”) funding markets. As a result, funding levels available to the Company in the repo markets – typically expressed as a spread over SOFR – have remained stable during the second quarter, continuing the trend we saw during the first quarter of 2026.
Previous wording
Within Agency RMBS for the first quarter of 2026, conventional 30-year mortgages generated a total return of 0.6%, 15-year mortgages generated a total return of 0.3% and Ginnie Mae 30-year mortgages generated a total return of 0.9%. Versus comparable duration swaps, the returns were (0.11%), (0.08%) and 0.29% 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 varied greatly by coupon, with lower (3.0% and lower) and highest coupons (6.5% and higher) outperforming middle coupons. This was the case for both absolute and excess returns for the first quarter. As interest rates ended the quarter slightly higher than at the end of 2025 prepayment rates – and expectations for prepayment rates going forward – subsided. This led to outperformance for highest coupons – even higher than the lowest coupon securities. The Company has the greatest concentration of its holdings in the 5.5% and 6.0% coupons, which generated absolute returns of 0.4% and 0.6%, respectively. Excess returns for these coupons were both -0.2%.
Current wording
Within Agency RMBS for the second quarter of 2026, conventional 30-year mortgages generated a total return of 0.6%, 15-year mortgages generated a total return of 0.1% and Ginnie Mae 30-year mortgages generated a total return of 0.7%. Versus comparable duration swaps, the returns were 0.6%, 0.0% and 0.6% 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 were lowest for lower coupons and increased for progressively higher coupons, with returns for coupons 4% and lower between 0.2% and 0.5%, and above 1.0% for coupons of 5% and higher. This is consistent with higher interest rates, lower prepayment expectations and the durations of the various coupons inversely related to coupon – the lower the coupon the higher the duration, and visa-versa. Conversely, excess returns were best for middle coupons – between the 4.5% and 6.0% coupons, with lower and higher coupons lagging. Excess returns for middle coupons were between 0.7% and 1.2%, while the lower and higher coupons ranged between 0.3% and 0.8%.
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 kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and 2025. On December 1, 2025, the Fed ended quantitative tightening and began reinvesting all proceeds from maturing Agency RMBS up to a $35 billion per month cap in U.S. Treasuries and announced that it would begin buying an additional $40 billion per month of U.S. Treasuries via RMPs in order to maintain an ample level of reserves on an ongoing basis. As of March 31, 2026, the Fed had reduced its balance sheet for Agency RMBS by approximately $745 billion from the peak of approximately $2.7 trillion to approximately $2.0 trillion , shedding approximately 54% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since December 2020.
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 kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and 2025. On December 1, 2025, the Fed ended quantitative tightening and began reinvesting all proceeds from maturing Agency RMBS up to a $35 billion per month cap in U.S. Treasuries and announced that it would begin buying an additional $40 billion per month of U.S. Treasuries via RMPs in order to maintain an ample level of reserves on an ongoing basis. RMPs were reduced to $25 billion per month in April 2026, and further reduced to $10 billion per month in May 2026, As of June 30, 2026, the Fed had reduced its balance sheet for Agency RMBS by approximately $792 billion from the peak of approximately $2.7 trillion to approximately $1.9 trillion, shedding approximately 58% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since August 2020.
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. Throughout 2025, there was some speculation in the market regarding progress towards an end to the conservatorship, including through an initial public offering, but a directive by the Trump administration in January 2026 that the Enterprises purchase up to $200 billion of Agency RMBS from their accumulated cash reserves will increase the Enterprises’ balance sheets and exposure to mortgage risk and could make a near-term end to the conservatorship unlikely. The announcement of the directive, designed to increase liquidity and compress the spread between mortgage interest rates and the 10-year U.S. Treasury, had the intended effect immediately and significantly increased mortgage application volumes. The longer-term implications of this directive remain t…
Excerpt shortened here; the source contains the full paragraph.
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. Throughout 2025 and early 2026, there was some speculation in the market regarding progress towards an end to the conservatorship, including through an initial public offering, but no definitive action has been taken and many analysts believe additional capital is needed before the Enterprises can safely exit conservatorship.
Previous wording
On March 19, 2026, the OCC, FDIC and the Fed rescinded the 2023 Basel III Endgame proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised GSIB capital surcharge proposal. The OCC, FDIC, and the Fed estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8 percent for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the 2023 Basel III Endgame. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Fed voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The comment period for the revised proposals is scheduled to close on June 18, 2026.
Current wording
On March 19, 2026, the OCC, FDIC and the Fed rescinded the 2023 Basel III Endgame proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised GSIB capital surcharge proposal. The OCC, FDIC, and the Fed estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8 percent for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the 2023 Basel III Endgame. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Fed voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The comment period for the revised proposals closed on June 18, 2026, with the Fed indicating that they hope to release the final rule by the end of 2026.
Previous wording
We leverage our PT RMBS portfolio and a portion of our structured Agency RMBS with principal balances through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by the short term interest rate markets. Increases in the Fed Funds rate or SOFR typically increase our borrowing costs, which could affect our interest rate spread if there is no corresponding increase in the interest we earn on our assets. The impact of these increases would be most prevalent with respect to our Agency RMBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change.
Current wording
We leverage our PT RMBS and structured Agency RMBS through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by the short term interest rate markets. Increases in the Fed Funds rate or SOFR typically increase our borrowing costs, which could affect our interest rate spread if there is no corresponding increase in the interest we earn on our assets. The impact of these increases would be most prevalent with respect to our Agency RMBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change.
Previous wording
The Company invests exclusively in Agency RMBS securities and applies leverage utilizing repurchase agreement funding. The primary drivers of the performance of our assets – both absolute performance and performance relative to our hedges, are interest rates, their impact on both our asset prices and the level of prepayments, interest rate volatility, particularly the level of implied volatility in interest rate swaptions and various interest rate derivatives, and finally our funding levels. Accordingly, we have significant exposure to interest rates and our performance is driven by our ability to select assets, manage our leverage, and our hedging strategy. Interest rates have been range bound for several months going back approximately 12 months, with the range briefly expanding slightly during the first quarter of 2026 as a result of the Iranian war. Interest rate volatility, both realized and implied in interest rate options, has remained subdued outside of a temporary spike at the onset of the war in Iran. It seems the economy and the markets generally are caught in a quandary where it is unclear if inflation, which has been running above the Fed’s 2% target level for several years, or growth prospects, now potentially negatively impacted by the war and increased commodity prices, will be the predominant driver of interest rates, monetary policy and the performance of risk assets of all types. The resulting uncertainty has resulted in relative stability in the level and volatility of interest rates, and therefore generally conducive conditions for levered Agency RMBS investors.
Current wording
The Company invests exclusively in Agency RMBS securities and applies leverage utilizing repurchase agreement funding. The primary drivers of the performance of our assets – both absolute performance and performance relative to our hedges, are interest rates, their impact on both our asset prices and the level of prepayments, interest rate volatility, particularly the level of implied volatility in interest rate swaptions and various interest rate derivatives, and finally our funding levels. Accordingly, we have significant exposure to interest rates, and our performance is driven by our ability to select assets, manage our leverage, and our hedging strategy. As we entered 2026, interest rates had been range bound for more than 12 months, but the range was broken during the first quarter of 2026 as a result of the Iran War. After a brief respite in the conflict, rates moved higher once again as prospects for a resolution dimmed and a new Fed Chairman, Kevin Warsh, took control of the Fed, immediately expressing his strong conviction in ending the five-year period of inflation running above the Fed’s 2% target. Interest rate volatility, both realized and implied in interest rate options, has remained subdued outside of the temporary spike at the onset of the Iran War.
Previous wording
Looking forward, the war in Iran continues to be the dominant force driving the performance of all markets. At this point it is unclear what the ultimate outcome of the war will be or when it will end. As for the economy and monetary policy the outlook is equally uncertain, as the war will likely impact both inflation and growth in the U.S. and global economies. The Company has deployed modest levels of leverage for the past several quarters and is likely to continue to do so given the market uncertainty. Positioning of the portfolio, in terms of asset selection, is likely to remain defensive going forward as well.
Current wording
At the outset of 2026, there was uncertainty about how the risks facing the economy would ultimately drive Fed policy and the level of interest rates, with resulting impacts on risk assets and Agency RMBS. Inflation was elevated, but risks to the growth outlook were clearly present, creating a quandary for policy makers. This does not appear to be the case now. Growth has proven to be remarkably resilient, as has the labor market, and the growth of the economy is not a pressing concern for policy makers or markets. Inflation, however, remains well above the Fed’s target and the Iran War seems likely to persist, representing a continued source of commodity inflation. Data released for June in early July reflected a welcome decrease in the various inflation measures, but considerable doubt remains regarding the sustainability of these readings. Looking forward, the Iran War continues to be a dominant force driving the performance of all markets. At this point, it is unclear what the ultimate outcome of the war will be or when it will end. As for the economy and monetary policy, the outlook is no longer uncertain, as the path of inflation alone is likely to drive monetary policy and interest rate levels in the United States. The Company has maintained modest levels of leverage for the past several quarters and is likely to continue to do so given the prevailing market uncertainty.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
During the six months ended June 30, 2026, we earned net interest income of $117.0 million consisting of $322.0 millionof interest income from RMBS assets offset by $205.0 millionof interest expense on borrowings. For the comparable period ended June 30, 2025, we earned $42.9 million of net interest income, consisting of $173.4 millionof interest income from RMBS assets offset by $130.5 millionof interest expense on borrowings. The $148.6 million increase in interest income was due to a 35 basis point ("bp") increasein the yield on average RMBS, combined with a $4,780.8 million increase in average RMBS. The $74.5 million increasein interest expense was due to a $4,603.3 million increase in average outstanding borrowings, offset by a 44 bps decreasein the average cost of funds.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
The Company is obligated to reimburse the Manager for any direct expenses incurred on its behalf and to pay the Manager the Company’s pro rata portion of certain overhead costs set forth in the management agreement.