株探米国株
英語
エドガーで原本を確認する
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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________ 
FORM 10-Q 
_______________________________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-34385
ivrmainimageinblacka07.jpg
Invesco Mortgage Capital Inc.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Maryland 26-2749336
(State or Other Jurisdiction of
Incorporation or Organization)		 (I.R.S. Employer
Identification No.)
1331 Spring Street, N.W., Suite 2500,
Atlanta, Georgia 30309
(Address of Principal Executive Offices) (Zip Code)
(404) 892-0896
(Registrant’s Telephone Number, Including Area Code) 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share IVR New York Stock Exchange
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock IVR PrB New York Stock Exchange
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock IVR PrC New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  
☐
    Accelerated filer   ☒
Non-Accelerated filer  
☐
    Smaller reporting company  
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒
As of July 31, 2023, there were 44,579,863 outstanding shares of common stock of Invesco Mortgage Capital Inc.
Table of Contents

INVESCO MORTGAGE CAPITAL INC.
TABLE OF CONTENTS
 
    Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


Table of Contents

PART I
ITEM 1.     FINANCIAL STATEMENTS
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
 As of
 $ in thousands, except share amounts June 30, 2023 December 31, 2022
ASSETS
Mortgage-backed securities, at fair value (including pledged securities of $5,224,675 and $4,439,583, respectively; net of allowance for credit losses of $169 and $0, respectively)
 5,507,460  4,791,893 
Cash and cash equivalents 209,036  175,535 
Restricted cash 124,669  103,246 
Due from counterparties —  1,584 
Investment related receivable 23,809  22,744 
Derivative assets, at fair value —  662 
Other assets 1,255  1,731 
Total assets 5,866,229  5,097,395 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Repurchase agreements 4,959,388  4,234,823 
Derivative liabilities, at fair value 2,635  2,079 
Dividends payable 17,832  25,162 
Accrued interest payable 40,159  20,546 
Collateral held payable —  4,892 
Accounts payable and accrued expenses 1,779  1,365 
Due to affiliate 3,552  4,453 
Total liabilities 5,025,345  4,293,320 
Commitments and contingencies (See Note 14):
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 4,499,846 and 4,537,634 shares issued and outstanding, respectively ($112,496 and $113,441 aggregate liquidation preference, respectively)
 108,766  109,679 
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 7,773,774 and 7,816,470 shares issued and outstanding, respectively ($194,344 and $195,412 aggregate liquidation preference, respectively)
 187,995  189,028 
Common Stock, par value $0.01 per share; 67,000,000 shares authorized, 44,579,863 and 38,710,916 shares issued and outstanding, respectively
445  387 
Additional paid in capital 3,968,567  3,901,562 
Accumulated other comprehensive income 2,741  10,761 
Retained earnings (distributions in excess of earnings) (3,427,630) (3,407,342)
Total stockholders’ equity 840,884  804,075 
Total liabilities and stockholders' equity 5,866,229  5,097,395 

The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Table of Contents

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
  Three Months Ended June 30, Six Months Ended June 30,
$ in thousands, except share data 2023 2022 2023 2022
Interest income
Mortgage-backed and other securities 71,428  43,994  140,715  85,631 
Commercial loan —  561  —  1,098 
Total interest income 71,428  44,555  140,715  86,729 
Interest expense
Repurchase agreements 59,022  3,455  108,748  1,351 
Total interest expense 59,022  3,455  108,748  1,351 
Net interest income 12,406  41,100  31,967  85,378 
Other income (loss)
Gain (loss) on investments, net (99,679) (324,876) (47,723) (829,264)
(Increase) decrease in provision for credit losses (169) —  (169) — 
Equity in earnings (losses) of unconsolidated ventures —  (352) 2  (281)
Gain (loss) on derivative instruments, net 96,624  181,742  51,729  420,602 
Other investment income (loss), net 27  (11) (66) 44 
Total other income (loss) (3,197) (143,497) 3,773  (408,899)
Expenses
Management fee – related party 3,168  4,619  6,147  9,893 
General and administrative 1,963  2,519  4,052  4,543 
Total expenses 5,131  7,138  10,199  14,436 
Net income (loss) 4,078  (109,535) 25,541  (337,957)
Dividends to preferred stockholders (5,840) (8,100) (11,702) (16,494)
Gain on repurchase and retirement of preferred stock 364  1,491  364  1,491 
Net income (loss) attributable to common stockholders (1,398) (116,144) 14,203  (352,960)
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic (0.03) (3.52) 0.35  (10.70)
Diluted (0.03) (3.52) 0.35  (10.70)

The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Net income (loss) 4,078  (109,535) 25,541  (337,957)
Other comprehensive income (loss):
Unrealized gain (loss) on mortgage-backed securities, net (131) (1,825) (607) (4,246)
Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses 169  —  169  — 
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense (3,201) (4,802) (7,695) (9,998)
Currency translation adjustments on investment in unconsolidated venture —  (93) (10) (293)
Reclassification of currency translation loss on investment in unconsolidated venture to other investment income (loss), net —  —  123  — 
Total other comprehensive income (loss) (3,163) (6,720) (8,020) (14,537)
Comprehensive income (loss) 915  (116,255) 17,521  (352,494)
Dividends to preferred stockholders (5,840) (8,100) (11,702) (16,494)
Gain on repurchase and retirement of preferred stock 364  1,491  364  1,491 
Comprehensive income (loss) attributable to common stockholders (4,561) (122,864) 6,183  (367,497)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 2023 and June 30, 2023
(Unaudited)

 
Additional
Paid in
Capital		 Accumulated
Other
Comprehensive
Income (Loss)		 Retained
Earnings
(Distributions
in excess of
earnings)		 Total
Stockholders’
Equity
Series B
Preferred Stock		 Series C
Preferred Stock
$ in thousands, except share amounts Common Stock
Shares Amount Shares Amount Shares Amount
Balance as of December 31, 2022 4,537,634  109,679  7,816,470  189,028  38,710,916  387  3,901,562  10,761  (3,407,342) 804,075 
Net income (loss) —  —  —  —  —  —  —  —  21,463  21,463 
Other comprehensive income (loss) —  —  —  —  —  —  —  (4,857) —  (4,857)
Proceeds from issuance of common stock, net of offering costs —  —  —  —  2,930,069  29  35,763  —  —  35,792 
Stock awards —  —  —  —  6,259  —  —  —  —  — 
Common stock dividends —  —  —  —  —  —  —  —  (16,658) (16,658)
Preferred stock dividends —  —  —  —  —  —  —  —  (5,862) (5,862)
Amortization of equity-based compensation —  —  —  —  —  —  162  —  —  162 
Balance as of March 31, 2023 4,537,634  109,679  7,816,470  189,028  41,647,244  416  3,937,487  5,904  (3,408,399) 834,115 
Net income (loss) —  —  —  —  —  —  —  —  4,078  4,078 
Other comprehensive income (loss) —  —  —  —  —  —  —  (3,163) —  (3,163)
Proceeds from issuance of common stock, net of offering costs —  —  —  —  2,888,639  29  30,939  —  —  30,968 
Repurchase and retirement of preferred stock (37,788) (913) (42,696) (1,033) —  —  —  —  364  (1,582)
Stock awards —  —  —  —  43,980  —  —  —  —  — 
Common stock dividends —  —  —  —  —  —  —  —  (17,833) (17,833)
Preferred stock dividends —  —  —  —  —  —  —  —  (5,840) (5,840)
Amortization of equity-based compensation —  —  —  —  —  —  141  —  —  141 
Balance as of June 30, 2023 4,499,846  108,766  7,773,774  187,995  44,579,863  445  3,968,567  2,741  (3,427,630) 840,884 

The accompanying notes are an integral part of these condensed consolidated financial statements.











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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 2022 and June 30, 2022
(Unaudited)


Additional
Paid in
Capital		 Accumulated
Other
Comprehensive
Income (Loss)		 Retained
Earnings
(Distributions
in excess of
earnings)		 Total
Stockholders’
Equity
Series B
Preferred Stock		 Series C
Preferred Stock
$ in thousands, except share amounts Common Stock
Shares Amount Shares Amount Shares Amount
Balance as of December 31, 2021 6,200,000  149,860  11,500,000  278,108  32,987,478  330  3,819,375  37,286  (2,882,824) 1,402,135 
Net income (loss) —  —  —  —  —  —  —  —  (228,422) (228,422)
Other comprehensive income (loss) —  —  —  —  —  —  —  (7,817) —  (7,817)
Stock awards —  —  —  —  4,315  —  —  —  —  — 
Common stock dividends —  —  —  —  —  —  —  —  (29,693) (29,693)
Preferred stock dividends —  —  —  —  —  —  —  —  (8,394) (8,394)
Amortization of equity-based compensation —  —  —  —  —  —  138  —  —  138 
Balance as of March 31, 2022 6,200,000  149,860  11,500,000  278,108  32,991,793  330  3,819,513  29,469  (3,149,333) 1,127,947 
Net income (loss) —  —  —  —  —  —  —  —  (109,535) (109,535)
Other comprehensive income (loss) —  —  —  —  —  —  —  (6,720) —  (6,720)
Repurchase and retirement of preferred stock (43,820) (1,059) (620,141) (14,997) —  —  —  —  1,491  (14,565)
Stock awards —  —  —  —  32,571  —  —  —  —  — 
Payments in lieu of fractional shares in connection with one-for-ten reverse stock split —  —  —  —  (46) —  (1) —  —  (1)
Common stock dividends —  —  —  —  —  —  —  —  —  — 
Preferred stock dividends —  —  —  —  —  —  —  —  (29,721) (29,721)
Redemption of preferred stock —  —  —  —  —  —  —  —  (8,100) (8,100)
Amortization of equity-based compensation —  —  —  —  —  —  158  —  —  158 
Balance as of June 30, 2022 6,156,180  148,801  10,879,859  263,111  33,024,318  330  3,819,670  22,749  (3,295,198) 959,463 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
   Six Months Ended June 30,
$ in thousands 2023 2022
Cash Flows from Operating Activities
Net income (loss) 25,541  (337,957)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of mortgage-backed and other securities premiums and (discounts), net 2,752  2,333 
Realized and unrealized (gain) loss on derivative instruments, net 66,172  (405,752)
(Gain) loss on investments, net 47,723  829,264 
Increase (decrease) in provision for credit losses 169  — 
(Gain) loss from investments in unconsolidated ventures in excess of distributions received (2) 37 
Other amortization (7,392) (9,702)
Loss on foreign currency translation 123  — 
Changes in operating assets and liabilities:
(Increase) decrease in operating assets (421) 2,182 
Increase (decrease) in operating liabilities 19,079  374 
Net cash provided by (used in) operating activities 153,744  80,779 
Cash Flows from Investing Activities
Purchase of mortgage-backed securities (2,393,198) (14,442,287)
Purchase of U.S. Treasury securities —  (502,290)
Distributions from investments in unconsolidated ventures, net 40  8,524 
Principal payments from mortgage-backed securities 144,515  264,791 
Proceeds from sale of mortgage-backed securities 1,482,034  17,264,232 
Proceeds from the sale of U.S. Treasury securities —  468,051 
Settlement (termination) of forwards, swaps, and TBAs, net (64,954) 424,661 
Net change in due from counterparties and collateral held payable on derivative instruments 1,584  (3,897)
Net cash provided by (used in) investing activities (829,979) 3,481,785 
Cash Flows from Financing Activities
Proceeds from issuance of common stock 66,760  — 
Repurchase of preferred stock (1,582) (14,565)
Cash paid in lieu of fractional shares in connection with one-for-ten reverse stock split —  (1)
Proceeds from repurchase agreements 17,156,436  35,949,170 
Principal repayments of repurchase agreements (16,431,871) (39,674,474)
Net change in due from counterparties and collateral held payable on repurchase agreements (4,892) 7,099 
Payments of deferred costs (169) (184)
Payments of dividends (53,523) (75,875)
Net cash provided by (used in) financing activities 731,159  (3,808,830)
Net change in cash, cash equivalents and restricted cash 54,924  (246,266)
Cash, cash equivalents and restricted cash, beginning of period 278,781  577,052 
Cash, cash equivalents and restricted cash, end of period 333,705  330,786 
Supplement Disclosure of Cash Flow Information
Interest paid 96,830  10,713 
Non-cash Investing and Financing Activities Information
Net change in unrealized gain (loss) on mortgage-backed securities classified as available-for-sale 438  (4,246)
Dividends declared not paid 17,832  29,722 
Net change in investment related receivable (payable) —  (791)
Net change in foreign currency translation adjustment recorded in accumulated other comprehensive income (113) 293 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Operations
Invesco Mortgage Capital Inc. (the “Company” or “we”) is a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities ("MBS”) and other mortgage-related assets.
As of June 30, 2023, we were invested in:
•residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “Agency RMBS”);
•commercial mortgage-backed securities (“CMBS”) that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”);
•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”); and
•other real estate-related financing arrangements.
During the periods presented in these condensed consolidated financial statements, we also invested in:
•a commercial mortgage loan; and
•U.S. Treasury securities.
We conduct our business through IAS Operating Partnership L.P. (the “Operating Partnership”) and have one operating segment. We are externally managed and advised by Invesco Advisers, Inc. (our “Manager”), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. (“Invesco”), a leading independent global investment management firm.
We elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We operate our business in a manner that permits our exclusion from the “Investment Company” definition under the Investment Company Act of 1940, as amended (the “1940 Act”).
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Certain disclosures included in our Annual Report on Form 10-K are not required to be included on an interim basis in our quarterly reports on Form 10-Q. We have condensed or omitted these disclosures. Therefore, this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022.
Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and consolidate the financial statements of the Company and its controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of our financial condition and results of operations for the periods presented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income on mortgage-backed securities and allowances for credit losses. Actual results may differ from those estimates.
Significant Accounting Policies
There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2022.
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Note 3 – Variable Interest Entities ("VIEs")
Our maximum risk of loss in VIEs in which we are not the primary beneficiary as of June 30, 2023 is presented in the table below.
$ in thousands Carrying
Amount		 Company's Maximum Risk of Loss
Non-Agency CMBS 36,730  36,730 
Non-Agency RMBS 8,256  8,256 
Investments in unconsolidated ventures 503  503 
Total 45,489  45,489 
Refer to Note 4 - "Mortgage-Backed Securities" and Note 5 - "Other Assets" for additional details regarding these investments.
Note 4 – Mortgage-Backed Securities
The following tables summarize our MBS portfolio by asset type as of June 30, 2023 and December 31, 2022.
As of June 30, 2023
$ in thousands Principal/ Notional
Balance		 Unamortized
Premium
(Discount)		 Amortized
Cost		 Allowance for Credit Losses Unrealized
Gain/
(Loss), net		 Fair
Value
Period-
end
Weighted
Average
Yield (1)
30 year fixed-rate Agency RMBS 5,521,614  (170,891) 5,350,723  —  33,274  5,383,997  5.14  %
Agency-CMO (2)
 596,770  (518,048) 78,722  —  (245) 78,477  9.60  %
Non-Agency CMBS 38,652  (885) 37,767  (169) (868) 36,730  8.52  %
Non-Agency RMBS (3)(4)(5)
 291,613  (283,897) 7,716  —  540  8,256  8.41  %
Total 6,448,649  (973,721) 5,474,928  (169) 32,701  5,507,460  5.24  %
(1)Period-end weighted average yield is based on amortized cost as of June 30, 2023 and incorporates future prepayment and loss assumptions when appropriate.
(2)All Agency collateralized mortgage obligations (“Agency-CMO”) are interest-only securities (“Agency IO”).
(3)Non-Agency RMBS is 68.0% fixed rate, 31.2% variable rate, and 0.8% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying hybrid adjustable-rate mortgage (“ARM”) loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.
(4)Of the total discount in non-Agency RMBS, $2.1 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(5)Non-Agency RMBS includes interest-only securities ("non-Agency IO") which represent 97.0% of principal/notional balance, 39.3% of amortized cost and 33.4% of fair value.
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As of December 31, 2022
$ in thousands Principal/Notional
Balance		 Unamortized
Premium
(Discount)		 Amortized
Cost		 Unrealized
Gain/
(Loss), net		 Fair
Value
Period-
end
Weighted
Average
Yield (1)
30 year fixed-rate Agency RMBS 4,722,768  (115,365) 4,607,403  54,334  4,661,737  5.26  %
Agency-CMO (2)
 619,069  (536,376) 82,693  2,263  84,956  9.09  %
Non-Agency CMBS 38,652  (1,472) 37,180  (393) 36,787  8.35  %
Non-Agency RMBS (3)(4)(5)
 307,016  (299,012) 8,004  409  8,413  8.33  %
Total 5,687,505  (952,225) 4,735,280  56,613  4,791,893  5.35  %
(1)Period-end weighted average yield is based on amortized cost as of December 31, 2022 and incorporates future prepayment and loss assumptions when appropriate.
(2)All Agency-CMO are Agency IO.
(3)Non-Agency RMBS is 68.6% fixed rate, 30.6% variable rate and 0.8% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying hybrid ARM loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.
(4)Of the total discount in non-Agency RMBS, $2.1 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(5)Non-Agency RMBS includes non-Agency IO which represent 97.1% of principal/notional balance, 41.6% of amortized cost and 35.3% of fair value.
The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of June 30, 2023 and December 31, 2022. We have elected the fair value option for all of our RMBS interest-only securities and our MBS purchased on or after September 1, 2016. As of June 30, 2023 and December 31, 2022, approximately 99% of our MBS was accounted for under the fair value option.
As of
June 30, 2023 December 31, 2022
$ in thousands Available-for-sale Securities Securities under Fair Value Option Total
Fair Value		 Available-for-sale Securities Securities under Fair Value Option Total
Fair Value
30 year fixed-rate Agency RMBS —  5,383,997  5,383,997  —  4,661,737  4,661,737 
Agency-CMO —  78,477  78,477  —  84,956  84,956 
Non-Agency CMBS 36,730  —  36,730  36,787  —  36,787 
Non-Agency RMBS 5,703  2,553  8,256  5,667  2,746  8,413 
Total 42,433  5,465,027  5,507,460  42,454  4,749,439  4,791,893 
The components of the carrying value of our MBS portfolio as of June 30, 2023 and December 31, 2022 are presented below. Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our condensed consolidated balance sheets, was $23.8 million as of June 30, 2023 (December 31, 2022: $21.3 million).
As of
June 30, 2023 December 31, 2022
$ in thousands MBS Interest-Only Securities Total MBS Interest-Only Securities Total
Principal/notional balance 5,568,991  879,658  6,448,649  4,770,175  917,330  5,687,505 
Unamortized premium 2,674  —  2,674  5,195  —  5,195 
Unamortized discount (178,489) (797,906) (976,395) (126,112) (831,308) (957,420)
Allowance for credit losses (169) —  (169) —  —  — 
Gross unrealized gains (1)
 43,706  3,272  46,978  62,245  4,605  66,850 
Gross unrealized losses (1)
 (10,492) (3,785) (14,277) (7,535) (2,702) (10,237)
Fair value 5,426,221  81,239  5,507,460  4,703,968  87,925  4,791,893 
(1)Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for under the fair value option as well as gains (losses) for available-for-sale securities which are recognized as adjustments to other comprehensive income. Realization occurs upon sale or settlement of such securities. Further detail on the components of our total gains (losses) on investments, net for the three and six months ended June 30, 2023 and 2022 is provided below in this Note 4.
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The following table summarizes our MBS portfolio according to estimated weighted average life classifications as of June 30, 2023 and December 31, 2022.
As of
$ in thousands June 30, 2023 December 31, 2022
Less than one year 26,717  26,593 
Greater than one year and less than five years 10,014  10,194 
Greater than or equal to five years 5,470,729  4,755,106 
Total 5,507,460  4,791,893 

The following tables present the estimated fair value and gross unrealized losses of our MBS by length of time that such securities have been in a continuous unrealized loss position as of June 30, 2023 and December 31, 2022.
As of June 30, 2023
   Less than 12 Months 12 Months or More Total
$ in thousands Fair
Value		 Unrealized
Losses		 Number
of
Securities		 Fair
Value		 Unrealized
Losses		 Number
of
Securities		 Fair
Value		 Unrealized
Losses		 Number
of
Securities
30 year fixed-rate Agency RMBS (1)
 1,849,796  (9,597) 17  —  —  —  1,849,796  (9,597) 17 
Agency-CMO (1)
 42,147  (1,617) 8  8,773  (1,702) 3  50,920  (3,319) 11 
Non-Agency CMBS (2)
 36,730  (868) 3  —  —  —  36,730  (868) 3 
Non-Agency RMBS (3)
 —  —  —  1,600  (493) 10  1,600  (493) 10 
Total 1,928,673  (12,082) 28  10,373  (2,195) 13  1,939,046  (14,277) 41 
(1)Fair value option has been elected for all Agency securities in an unrealized loss position.
(2)Unrealized losses on non-Agency CMBS are included in accumulated other comprehensive income. These losses are not reflected in an allowance for credit losses based on a comparison of discounted expected cash flows to current amortized cost basis.
(3)Includes non-Agency IO with a fair value of $1.3 million for which the fair value option has been elected. Such securities have unrealized losses of $466,000.
As of December 31, 2022
   Less than 12 Months 12 Months or More Total
$ in thousands Fair
Value		 Unrealized
Losses		 Number
of
Securities		 Fair
Value		 Unrealized
Losses		 Number
of
Securities		 Fair
Value		 Unrealized
Losses		 Number
of
Securities
30 year fixed-rate Agency RMBS (1)
 929,292  (7,060) 7  —  —  —  929,292  (7,060) 7 
Agency-CMO (1)
 25,417  (1,645) 6  2,934  (496) 1  28,351  (2,141) 7 
Non-Agency CMBS (2)
 26,592  (439) 2 —  —  —  26,592  (439) 2
Non-Agency RMBS (3)
 349  (36) 2  1,411  (561) 9  1,760  (597) 11 
Total 981,650  (9,180) 17  4,345  (1,057) 10  985,995  (10,237) 27 
(1)Fair value option has been elected for all Agency securities in an unrealized loss position.
(2)Unrealized losses on non-Agency CMBS are included in accumulated other comprehensive income. These losses are not reflected in an allowance for credit losses based on a comparison of discounted expected cash flows to current amortized cost basis.
(3)Includes non-Agency IO with a fair value of $1.4 million for which the fair value option has been elected. Such securities have unrealized losses of $561,000.

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We recorded a $169,000 provision for credit losses on a single non-Agency CMBS during the three and six months ended June 30, 2023. We did not record any provisions for credit losses during the three and six months ended June 30, 2022. The following table presents a roll-forward of our allowance for credit losses.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2023
Beginning allowance for credit losses —  — 
Additions to the allowance for credit losses on securities for which credit losses were not previously recorded (169) (169)
Ending allowance for credit losses (169) (169)
The following table summarizes the components of our total gain (loss) on investments, net for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Gross realized gains on sale of MBS —  5,348  5,363  5,348 
Gross realized losses on sale of MBS (10,484) (540,404) (29,612) (859,374)
Net unrealized gains (losses) on MBS accounted for under the fair value option (89,195) 224,464  (23,474) 58,997 
Net unrealized gains (losses) on commercial loan —  87  —  (37)
Net unrealized gains (losses) on U.S. Treasury securities —  19,827  —  — 
Net realized gains (losses) on U.S. Treasury securities —  (34,198) —  (34,198)
Total gain (loss) on investments, net (99,679) (324,876) (47,723) (829,264)
The following tables present components of interest income recognized on our mortgage-backed and other securities portfolio for the three and six months ended June 30, 2023 and 2022.
For the three months ended June 30, 2023
$ in thousands Coupon
Interest		 Net (Premium
Amortization)/Discount
Accretion		 Interest
Income
Agency RMBS 68,570  1,138  69,708 
Non-Agency CMBS 491  296  787 
Non-Agency RMBS 288  (125) 163 
Other 770  —  770 
Total 70,119  1,309  71,428 
For the three months ended June 30, 2022
$ in thousands Coupon
Interest		 Net (Premium
Amortization)/Discount
Accretion		 Interest
Income
Agency RMBS 40,927  422  41,349 
Non-Agency CMBS 668  509  1,177 
Non-Agency RMBS 310  (132) 178 
U.S. Treasury Securities 1,213  (25) 1,188 
Other 102  —  102 
Total 43,220  774  43,994 

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For the six months ended June 30, 2023
$ in thousands Coupon
Interest		 Net (Premium
Amortization)/Discount
Accretion		 Interest
Income
Agency RMBS 136,053  1,152  137,205 
Non-Agency CMBS 966  587  1,553 
Non-Agency RMBS 578  (259) 319 
Other 1,638  —  1,638 
Total 139,235  1,480  140,715 
For the six months ended June 30, 2022
$ in thousands Coupon
Interest		 Net (Premium
Amortization)/Discount
Accretion		 Interest
Income
Agency RMBS 87,525  (6,506) 81,019 
Non-Agency CMBS 1,405  1,012  2,417 
Non-Agency RMBS 640  (283) 357 
U.S. Treasury Securities 1,773  (41) 1,732 
Other 106  —  106 
Total 91,449  (5,818) 85,631 
Note 5 – Other Assets
The following table summarizes our other assets as of June 30, 2023 and December 31, 2022.
As of
$ in thousands June 30, 2023 December 31, 2022
Investments in unconsolidated ventures 503  552 
Prepaid expenses and other assets 752  1,179 
Total 1,255  1,731 
As of December 31, 2022, we were invested in two unconsolidated ventures that were managed by an affiliate of our Manager. Our joint venture whose net assets were denominated in euros was dissolved during the first quarter of 2023. Our remaining unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible. Refer to Note 14 - "Commitments and Contingencies" for additional details regarding our commitment to this unconsolidated venture.
Note 6 – Borrowings
We finance the majority of our investment portfolio through repurchase agreements. Our repurchase agreements bear interest at a contractually agreed upon rate and generally have maturities ranging from one to six months. We account for our repurchase agreements as secured borrowings since we maintain effective control of the financed assets. Our repurchase agreements are subject to certain financial covenants. We were in compliance with all of these covenants as of June 30, 2023.
The following tables summarize certain characteristics of our borrowings as of June 30, 2023 and December 31, 2022. Refer to Note 7 - "Collateral Positions" for collateral pledged and held under our repurchase agreements.
As of
$ in thousands June 30, 2023 December 31, 2022
Weighted Weighted
Weighted Average Weighted Average
Average Remaining Average Remaining
Amount Interest Maturity Amount Interest Maturity
Outstanding Rate (days) Outstanding Rate (days)
Repurchase Agreements - Agency RMBS 4,959,388  5.21  % 49 4,234,823  4.24  % 28
Total Borrowings 4,959,388  5.21  % 49 4,234,823  4.24  % 28

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Note 7 - Collateral Positions
The following table summarizes the fair value of collateral that we pledged and held under our repurchase agreements, interest rate swaps and TBAs as of June 30, 2023 and December 31, 2022. Refer to Note 2 - "Summary of Significant Accounting Policies - Fair Value Measurements" of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a description of how we determine fair value. Agency RMBS collateral pledged is included in mortgage-backed securities on our condensed consolidated balance sheets. Cash collateral pledged on centrally cleared interest rate swaps is classified as restricted cash on our condensed consolidated balance sheets. Cash collateral pledged on repurchase agreements and TBAs accounted for as derivatives is classified as due from counterparties on our condensed consolidated balance sheets.
Cash collateral held that is not restricted for use is included in cash and cash equivalents on our condensed consolidated balance sheets and the liability to return the collateral is included in collateral held payable. Non-cash collateral held is only recognized if the counterparty defaults or if we sell the pledged collateral. As of June 30, 2023 and December 31, 2022, we did not recognize any non-cash collateral held on our condensed consolidated balance sheets.
$ in thousands As of
Collateral Pledged June 30, 2023 December 31, 2022
Repurchase Agreements:
Agency RMBS 5,224,675  4,439,583 
Total repurchase agreements collateral pledged 5,224,675  4,439,583 
Derivative Instruments:
Cash —  1,584 
Restricted cash 124,669  103,246 
Total derivative instruments collateral pledged 124,669  104,830 
Total collateral pledged:
Agency RMBS 5,224,675  4,439,583 
Cash —  1,584 
Restricted cash 124,669  103,246 
Total collateral pledged 5,349,344  4,544,413 
As of
Collateral Held June 30, 2023 December 31, 2022
Repurchase Agreements:
Cash —  4,892 
Non-cash collateral —  7,216 
Total repurchase agreements collateral held —  12,108 
Repurchase Agreements
Collateral pledged with our repurchase agreement counterparties is segregated in our books and records. The repurchase agreement counterparties have the right to resell and repledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral if agreed to by us, upon maturity of the repurchase agreement. Under the repurchase agreements, the respective lender retains the contractual right to mark the underlying collateral to fair value. We would be required to provide additional collateral to fund margin calls if the value of pledged assets declined. We intend to maintain a level of liquidity that will enable us to meet margin calls.
The ratio of our total repurchase agreements collateral pledged to our total repurchase agreements outstanding was 105% as of June 30, 2023 (December 31, 2022: 105%) based on the fair value of the securities as reported in our condensed consolidated balance sheets.
Interest Rate Swaps
As of June 30, 2023 and December 31, 2022, all of our interest rate swaps were centrally cleared by a registered clearing organization such as the Chicago Mercantile Exchange (“CME”) and LCH Limited (“LCH”) through a Futures Commission Merchant (“FCM”).
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We are required to pledge initial margin and daily variation margin for our centrally cleared interest rate swaps that is based on the fair value of our contracts as determined by our FCM. Collateral pledged with our FCM is segregated in our books and records and can be in the form of cash or securities. Daily variation margin for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as gain (loss) on derivative instruments, net in our condensed consolidated statements of operations. Certain of our FCM agreements include cross default provisions.
TBAs
Our TBAs provide for bilateral collateral pledging based on market value as determined by our counterparties. Collateral pledged with our TBA counterparties is segregated in our books and records and can be in the form of cash or securities. Our counterparties have the right to repledge the collateral posted and have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the contracts changes.
Note 8 – Derivatives and Hedging Activities
The following table summarizes changes in the notional amount of our derivative instruments during 2023.
$ in thousands Notional Amount as of December 31, 2022 Additions Settlement,
Termination,
Expiration
or Exercise		 Notional Amount as of June 30, 2023
Interest Rate Swaps (1) (2)
 8,150,000  500,000  (775,000) 7,875,000 
TBA Purchase Contracts 400,000  1,150,000  (1,550,000) — 
TBA Sale Contracts (400,000) (1,150,000) 1,550,000  — 
Total 8,150,000  500,000  (775,000) 7,875,000 
(1)Does not include interest rate swaps with forward start dates until the date they begin to bear interest. See below for additional detail on our interest rate swaps with forward start dates.
(2)Notional amount as of June 30, 2023 includes $6.3 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $1.6 billion of interest rate swaps whereby we pay interest at a floating rate and receive interest at a fixed rate. Notional amount as of December 31, 2022 includes $5.8 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $2.4 billion of interest rate swaps whereby we pay interest at a floating rate and receive interest at a fixed rate.
Refer to Note 7 - "Collateral Positions" for further information regarding our collateral pledged to and received from our derivative counterparties.
Interest Rate Swaps
Our repurchase agreements are usually settled on a short-term basis ranging from one month to six months. At each settlement date, we typically refinance each repurchase agreement at the market interest rate at that time. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposures to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Under the terms of the majority of our interest rate swap contracts, we make fixed-rate payments to a counterparty in exchange for the receipt of floating-rate amounts over the life of the agreements without exchange of the underlying notional amount. To a lesser extent, we also enter into interest rate swap contracts whereby we make floating-rate payments to a counterparty in exchange for the receipt of fixed-rate amounts as part of our overall risk management strategy.
Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. We reclassified $3.2 million and $7.7 million as a decrease (June 30, 2022: $4.8 million and $10.0 million as a decrease) to interest expense for the three and six months ended June 30, 2023, respectively. As of June 30, 2023, $2.7 million (December 31, 2022: $10.4 million) of unrealized gains on discontinued cash flow hedges, net are still included in accumulated other comprehensive income and are expected to be reclassified as a decrease to interest expense, repurchase agreements over a period of time through December 15, 2023.
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As of June 30, 2023 and December 31, 2022, we had interest rate swaps whereby we pay interest at a fixed rate and receive floating interest based on the secured overnight financing rate (“SOFR”) with the following maturities outstanding, excluding interest rate swaps with forward start dates.
$ in thousands As of June 30, 2023
Maturities Notional
Amount		 Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity
Less than 3 years 2,050,000  0.18  % 5.09  % 1.9
3 to 5 years 1,475,000  0.27  % 5.09  % 4.2
5 to 7 years 850,000  0.38  % 5.09  % 5.7
7 to 10 years 1,425,000  0.55  % 5.09  % 7.3
Greater than 10 years 500,000  1.92  % 5.09  % 18.7
Total 6,300,000  0.45  % 5.09  % 5.5
$ in thousands As of December 31, 2022
Maturities Notional
Amount		 Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity
Less than 3 years 1,550,000  0.09  % 4.30  % 2.2
3 to 5 years 1,475,000  0.27  % 4.30  % 4.7
5 to 7 years 850,000  0.38  % 4.30  % 6.2
7 to 10 years 1,425,000  0.55  % 4.30  % 7.8
Greater than 10 years 500,000  1.92  % 4.30  % 19.2
Total 5,800,000  0.45  % 4.30  % 6.3
As of June 30, 2023, we held $475.0 million notional amount of interest rate swaps with forward start dates that will receive floating interest based on SOFR (December 31, 2022: $975.0 million). As of June 30, 2023, these interest rate swaps had a weighted average maturity of 30.1 years (December 31, 2022: 16.5 years) and a weighted average fixed pay rate of 1.33% (December 31, 2022: 0.89%).
As of June 30, 2023 and December 31, 2022, we had interest rate swaps whereby we pay floating interest based on SOFR and receive interest at a fixed rate with the following maturities outstanding, excluding interest rate swaps with forward start dates.
$ in thousands As of June 30, 2023
Maturities Notional
Amount		 Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity
3 to 5 years 375,000  5.09  % 2.66  % 4.6
5 to 7 years 825,000  5.09  % 2.68  % 6.0
7 to 10 years 100,000  5.09  % 2.74  % 8.9
Greater than 10 years 275,000  5.09  % 2.72  % 29.0
Total 1,575,000  5.09  % 2.69  % 9.9


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$ in thousands As of December 31, 2022
Maturities Notional
Amount		 Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity
Less than 3 years 100,000  4.30  % 4.90  % 0.9
3 to 5 years 550,000  4.30  % 2.74  % 4.0
5 to 7 years 1,125,000  4.30  % 2.66  % 6.0
7 to 10 years 200,000  4.30  % 2.66  % 8.4
Greater than 10 years 375,000  4.30  % 2.67  % 29.5
Total 2,350,000  4.30  % 2.78  % 9.3
As of June 30, 2023, we held $275.0 million notional amount of interest rate swaps with forward start dates that will pay floating interest based on SOFR (December 31, 2022: $275.0 million). As of June 30, 2023, these interest rate swaps had a weighted average maturity of 15.5 years (December 31, 2022: 16.0 years) and a weighted average fixed receive rate of 2.63% (December 31, 2022: 2.63%).
Currency Forward Contracts
We have historically used currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on our investments denominated in foreign currencies. We recognize realized and unrealized gains and losses associated with the purchases or sales of currency forward contracts in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations. We did not have any currency forward contracts outstanding as of June 30, 2023 or December 31, 2022.
TBAs
We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS. The following table summarizes certain characteristics of our TBAs accounted for as derivatives as of December 31, 2022. We did not have any TBAs outstanding as of June 30, 2023.
$ in thousands As of December 31, 2022
Notional
Amount		 Implied
Cost Basis		 Implied
Market Value		 Net
Carrying Value
TBA Purchase Contracts (1)
 400,000  404,144  402,237  (1,907)
TBA Sale Contracts (2)
 (400,000) (402,707) (402,237) 470 
Net TBA Derivatives —  1,437  —  (1,437)
(1)Net carrying value of TBA purchase contracts includes $1.9 million of derivative liabilities.
(2)Net carrying value of TBA sales contract includes $642,000 of derivative assets and $172,000 of derivative liabilities.
Tabular Disclosure of the Effect of Derivative Instruments on the Balance Sheet
The table below presents the fair value of our derivative financial instruments, as well as their classification on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.
$ in thousands
Derivative Assets Derivative Liabilities
As of As of
June 30,
2023		 December 31,
2022		 June 30,
2023		 December 31,
2022
Balance Sheet Fair Value Fair Value Balance Sheet Fair Value Fair Value
Interest Rate Swaps Asset —  20  Interest Rate Swaps Liability 2,635  — 
TBAs —  642  TBAs —  2,079 
Total Derivative Assets —  662  Total Derivative Liabilities 2,635  2,079 
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The following tables summarize the effect of interest rate swaps, currency forward contracts and TBAs reported in gain (loss) on derivative instruments, net on the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022.
$ in thousands
 Three Months Ended June 30, 2023
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps 27,893  63,437  5,312  96,642 
Currency Forward Contracts (18) —  —  (18)
TBAs (929) —  929  — 
Total 26,946  63,437  6,241  96,624 
$ in thousands
 Three Months Ended June 30, 2022
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps 209,913  13,566  (2,966) 220,513 
Currency Forward Contracts 486  —  (177) 309 
TBAs (69,167) —  30,087  (39,080)
Total 141,232  13,566  26,944  181,742 
$ in thousands
 Six Months Ended June 30, 2023
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps (63,056) 117,901  (2,656) 52,189 
Currency Forward Contracts (18) —  —  (18)
TBAs (1,880) —  1,438  (442)
Total (64,954) 117,901  (1,218) 51,729 
$ in thousands
 Six Months Ended June 30, 2022
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps 553,222  14,850  (14,365) 553,707 
Currency Forward Contracts 679  —  (218) 461 
TBAs (129,240) —  (4,326) (133,566)
Total 424,661  14,850  (18,909) 420,602 

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Note 9 – Offsetting Assets and Liabilities
Certain of our repurchase agreements and derivative transactions are governed by underlying agreements that generally provide for a right of offset under master netting arrangements (or similar agreements) in the event of default or in the event of bankruptcy of either party to the transactions. Assets and liabilities subject to such arrangements are presented on a gross basis in the condensed consolidated balance sheets.
The following tables present information about the assets and liabilities that are subject to master netting arrangements (or similar agreements) and can potentially be offset on our condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022. The daily variation margin payment for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral. Our derivative liability of $2.6 million as of June 30, 2023 (December 31, 2022: asset of $20,000) related to centrally cleared interest rate swaps is not included in the table below as a result of this characterization of daily variation margin.
As of June 30, 2023
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets
$ in thousands
 Gross
Amounts of
Recognized
Assets (Liabilities)		 Gross
Amounts
Offset in the
Balance
Sheets		 Net Amounts of Assets (Liabilities) Presented in the
Balance Sheets		 Financial
Instruments
Cash Collateral
(Received) Pledged 		Net
Amount
Liabilities
Repurchase Agreements (1)
 (4,959,388) —  (4,959,388) 4,959,388  —  — 
Total Liabilities (4,959,388) —  (4,959,388) 4,959,388  —  — 
As of December 31, 2022
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets
$ in thousands
 Gross
Amounts of
Recognized
Assets (Liabilities)		 Gross
Amounts
Offset in the
Balance
Sheets		 Net Amounts of Assets (Liabilities) Presented in the
Balance Sheets		 Financial
Instruments		 Cash Collateral
(Received) Pledged		 Net
Amount
Assets
Derivatives (2) (3)
 642  —  642  (642) —  — 
Total Assets 642  —  642  (642) —  — 
Liabilities
Derivatives (2) (3)
 (2,079) —  (2,079) 642  1,297  (140)
Repurchase Agreements (1)
 (4,234,823) —  (4,234,823) 4,234,823  —  — 
Total Liabilities (4,236,902) —  (4,236,902) 4,235,465  1,297  (140)
(1)The fair value of securities pledged against our borrowings under repurchase agreements was $5.2 billion as of June 30, 2023 (December 31, 2022: $4.4 billion). We held no cash collateral under repurchase agreements as of June 30, 2023 (December 31, 2022: $4.9 million).
(2)Amounts represent derivative assets and derivative liabilities which could potentially be offset against other derivative assets, derivative liabilities and cash collateral pledged or received.
(3)Cash collateral pledged by us on our derivatives was $124.7 million as of June 30, 2023 (December 31, 2022: $104.8 million) of which $124.7 million relates to initial margin pledged on centrally cleared interest rate swaps (December 31, 2022: $103.2 million). Centrally cleared interest rate swaps are excluded from the tables above. We held no cash collateral on our derivatives as of June 30, 2023 and December 31, 2022.
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Note 10 – Fair Value of Financial Instruments
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The three levels are defined as follows:
•Level 1 Inputs – Quoted prices for identical instruments in active markets.
•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs – Instruments with primarily unobservable value drivers.
The following tables present our assets and liabilities measured at fair value on a recurring basis.
As of June 30, 2023
Fair Value Measurements Using:
$ in thousands Level 1 Level 2 Level 3
NAV as a practical expedient (2)
 Total at
Fair Value
Assets:
Mortgage-backed securities (1)
 —  5,507,460  —  —  5,507,460 
Other assets —  —  —  503  503 
Total assets —  5,507,460  —  503  5,507,963 
Liabilities:
Derivative liabilities —  2,635  —  —  2,635 
Total liabilities —  2,635  —  —  2,635 
As of December 31, 2022
  Fair Value Measurements Using:  
$ in thousands Level 1 Level 2 Level 3
NAV as a practical expedient (2)
 Total at
Fair Value
Assets:
Mortgage-backed securities (1)
 —  4,791,893  —  —  4,791,893 
Derivative assets —  662  —  —  662 
Other assets —  —  —  552  552 
Total assets —  4,792,555  —  552  4,793,107 
Liabilities:
Derivative liabilities —  2,079  —  —  2,079 
Total liabilities —  2,079  —  —  2,079 
(1)For more detail about the fair value of our MBS, refer to Note 4 - “Mortgage-Backed Securities”.
(2)Investments in unconsolidated ventures are valued using the net asset value (“NAV”) as a practical expedient and are not subject to redemption, although investors may sell or transfer their interest at the approval of the general partner of the underlying funds. As of December 31, 2022, we were invested in two unconsolidated ventures that were managed by an affiliate of our Manager. One of the unconsolidated ventures was dissolved during the first quarter of 2023. As of June 30, 2023, the remaining unconsolidated venture was in liquidation and plans to sell or settle its remaining investments as expeditiously as possible.
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The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.
As of
  June 30, 2023 December 31, 2022
$ in thousands Carrying
Value		 Estimated
Fair Value		 Carrying
Value		 Estimated
Fair Value
Financial Liabilities
Repurchase agreements 4,959,388  4,958,370  4,234,823  4,233,627 
Total 4,959,388  4,958,370  4,234,823  4,233,627 
The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates we determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.
Note 11 – Related Party Transactions
Our Manager is at all times subject to the supervision and oversight of our board of directors and has only such functions and authority as we delegate to it. Under the terms of our management agreement, our Manager and its affiliates provide us with our management team, including our officers and appropriate support personnel. Each of our officers is an employee of our Manager or one of its affiliates. We do not have any employees. Our Manager is not obligated to dedicate any of its employees exclusively to us, nor is our Manager obligated to dedicate any specific portion of time to our business. The costs of support personnel provided by our Manager for the three and six months ended June 30, 2023 reimbursed or reimbursable by us were $461,000 and $870,000, respectively (June 30, 2022: $337,000 and $750,000, respectively).
Management Fee
We pay our Manager a fee equal to 1.50% of our stockholders' equity per annum. For purposes of calculating the management fee, stockholders' equity is calculated as average month-end stockholders' equity for the prior calendar quarter as determined in accordance with U.S. GAAP. Stockholders' equity may exclude one-time events due to changes in U.S. GAAP and certain non-cash items upon approval by a majority of our independent directors.
We do not pay any management fees on our investments in unconsolidated ventures that are managed by an affiliate of our Manager.
Expense Reimbursement
We are required to reimburse our Manager for operating expenses incurred on our behalf, including directors and officers insurance, accounting services, auditing and tax services, legal services, filing fees, and miscellaneous general and administrative costs. Our reimbursement obligation is not subject to any dollar limitation.
The following table summarizes the costs incurred on our behalf by our Manager during the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Incurred costs, prepaid or expensed 1,294  2,020  2,688  3,357 
Incurred costs, charged or expected to be charged against equity as a cost of raising capital 257  159  257  217 
Total incurred costs, originally paid by our Manager 1,551  2,179  2,945  3,574 
Note 12 – Stockholders’ Equity
Preferred Stock
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the three and six months ended June 30, 2023, we repurchased and retired 37,788 shares of Series B Preferred Stock and 42,696 shares of Series C Preferred Stock. During the three and six months ended June 30, 2022, we repurchased and retired 43,820 shares of Series B Preferred Stock and 620,141 shares of Series C Preferred Stock. As of June 30, 2023, we had authority to purchase 1,299,846 additional shares of our Series B Preferred Stock and 1,273,774 additional shares of our Series C Preferred Stock under the current share repurchase program.
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Holders of our Series B Preferred Stock are entitled to receive dividends at an annual rate of 7.75% of the liquidation preference of $25.00 per share or $1.9375 per share per annum until December 27, 2024. After December 27, 2024, holders are entitled to receive dividends at a floating rate originally equal to three-month London Interbank Offered Rate (“LIBOR”) plus a spread of 5.18% of the $25.00 liquidation preference per annum. On June 30, 2023, LIBOR ceased being published. Under the Adjustable Interest Rate (LIBOR) Act ( “LIBOR Act”), the floating rate will be three-month CME Term SOFR plus the applicable credit spread adjustment (0.26161%). Dividends are cumulative and payable quarterly in arrears.
Holders of our Series C Preferred Stock are entitled to receive dividends at an annual rate of 7.50% of the liquidation preference of $25.00 per share or $1.875 per share per annum until September 27, 2027. After September 27, 2027, holders are entitled to receive dividends at a floating rate originally equal to three-month LIBOR plus a spread of 5.289% of the $25.00 liquidation preference per annum. Under the LIBOR Act, the floating rate will be three-month CME Term SOFR plus the applicable credit spread adjustment (0.26161%). Dividends are cumulative and payable quarterly in arrears.
We have the option to redeem shares of our Series B Preferred Stock after December 27, 2024 and shares of our Series C Preferred Stock after September 27, 2027 for $25.00 per share, plus any accumulated and unpaid dividends through the date of the redemption. Shares of Series B and Series C Preferred Stock are not redeemable, convertible into or exchangeable for any other property or any other securities of the Company before those times, except under circumstances intended to preserve our qualification as a REIT or upon the occurrence of a change in control.
Common Stock
In May 2022, our board of directors approved a one-for-ten reverse split of outstanding shares of our common stock. The reverse stock split was effected following the close of business on June 3, 2022 (the “Effective Time”). At the Effective Time, every ten issued and outstanding shares of our common stock were converted into one share of our common stock. No fractional shares were issued in connection with the reverse stock split. Instead, each stockholder holding fractional shares received cash, in lieu of such fractional shares, in an amount determined based on the closing price of our common stock at the Effective Time. The reverse stock split applied to all of our outstanding shares of common stock and did not affect any stockholder’s ownership percentage of our common stock, except for changes resulting from the payment of cash for fractional shares.
As of June 30, 2023, we may sell up to 10,181,292 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents. These shares are registered with the SEC under our shelf registration statement (as amended and/or supplemented). During the three months ended June 30, 2023, we sold 2,888,639 shares of common stock under our equity distribution agreement for proceeds of $31.0 million, net of approximately $421,000 in commissions and fees. During the six months ended June 30, 2023, we sold 5,818,708 shares of common stock under our equity distribution agreement for proceeds of $66.8 million, net of approximately $903,000 in commissions and fees. We did not sell any shares of common stock under equity distribution agreements during the three and six months ended June 30, 2022.
During the three and six months ended June 30, 2023 and 2022, we did not repurchase any shares of our common stock. As of June 30, 2023, we had authority to purchase 1,816,398 shares of our common stock through our common stock share repurchase program.
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Accumulated Other Comprehensive Income
The following tables present the components of total other comprehensive income (loss), net and accumulated other comprehensive income (“AOCI”) for the three and six months ended June 30, 2023 and 2022. The tables exclude gains and losses on MBS that are accounted for under the fair value option.
Three Months Ended June 30, 2023
$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total
Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed securities, net —  (131) —  (131)
Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses —  169  —  169 
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense —  —  (3,201) (3,201)
Total other comprehensive income (loss) —  38  (3,201) (3,163)
AOCI balance at beginning of period —  (7) 5,911  5,904 
Total other comprehensive income (loss) —  38  (3,201) (3,163)
AOCI balance at end of period —  31  2,710  2,741 
Three Months Ended June 30, 2022
$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total
Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed securities, net —  (1,825) —  (1,825)
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense —  —  (4,802) (4,802)
Currency translation adjustments on investment in unconsolidated venture (93) —  —  (93)
Total other comprehensive income (loss) (93) (1,825) (4,802) (6,720)
AOCI balance at beginning of period 224  4,328  24,917  29,469 
Total other comprehensive income (loss) (93) (1,825) (4,802) (6,720)
AOCI balance at end of period 131  2,503  20,115  22,749 

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Six Months Ended June 30, 2023
$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total
Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed securities, net —  (607) —  (607)
Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses —  169  —  169 
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense —  —  (7,695) (7,695)
Currency translation adjustments on investment in unconsolidated venture (10) —  —  (10)
Reclassification of currency translation loss on investment in unconsolidated venture to other investment income (loss), net 123  —  —  123 
Total other comprehensive income (loss) 113  (438) (7,695) (8,020)
AOCI balance at beginning of period (113) 469  10,405  10,761 
Total other comprehensive income (loss) 113  (438) (7,695) (8,020)
AOCI balance at end of period —  31  2,710  2,741 
Six Months Ended June 30, 2022
$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total
Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed securities, net —  (4,246) —  (4,246)
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense —  —  (9,998) (9,998)
Currency translation adjustments on investment in unconsolidated venture (293) —  —  (293)
Total other comprehensive income (loss) (293) (4,246) (9,998) (14,537)
AOCI balance at beginning of period 424  6,749  30,113  37,286 
Total other comprehensive income (loss) (293) (4,246) (9,998) (14,537)
AOCI balance at end of period 131  2,503  20,115  22,749 
Amounts recorded in AOCI before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining original life of the interest rate swap agreements.
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Dividends
The table below summarizes the dividends we declared during the six months ended June 30, 2023 and 2022.
$ in thousands, except per share amounts Dividends Declared
Series B Preferred Stock Per Share In Aggregate Date of Payment
2023
May 8, 2023 0.4844  2,186  June 27, 2023
February 17, 2023 0.4844  2,198  March 27, 2023
2022
May 3, 2022 0.4844  2,991  June 27, 2022
February 16, 2022 0.4844  3,003  March 28, 2022
$ in thousands, except per share amounts Dividends Declared
Series C Preferred Stock Per Share In Aggregate Date of Payment
2023
May 8, 2023 0.46875  3,654  June 27, 2023
February 17, 2023 0.46875  3,664  March 27, 2023
2022
May 3, 2022 0.46875  5,109  June 27, 2022
February 16, 2022 0.46875  5,391  March 28, 2022
$ in thousands, except per share amounts Dividends Declared
Common Stock Per Share In Aggregate Date of Payment
2023
June 21, 2023 0.40  17,833  July 27, 2023
March 27, 2023 0.40  16,658  April 27, 2023
2022
June 27, 2022 0.90  29,721  July 27, 2022
March 28, 2022 0.90  29,693  April 27, 2022
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Note 13 – Earnings (Loss) per Common Share
Earnings (loss) per share for the three and six months ended June 30, 2023 and 2022 is computed as shown in the table below.
Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share amounts 2023 2022 2023 2022
Numerator (Income)
Basic Earnings:
Net income (loss) available to common stockholders (1,398) (116,144) 14,203  (352,960)
Denominator (Weighted Average Shares)
Basic Earnings:
Shares available to common stockholders 42,391  32,990  41,007  32,988 
Effect of dilutive securities:
Restricted stock awards —  —  1  — 
Dilutive Shares 42,391  32,990  41,008  32,988 
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic (0.03) (3.52) 0.35  (10.70)
Diluted (0.03) (3.52) 0.35  (10.70)
The following potential weighted average common shares were excluded from diluted earnings per share for the three months ended June 30, 2023 as the effect would be antidilutive: 654 (three and six months ended June 30, 2022: 1,127 and 1,314 for restricted stock awards, respectively).
Note 14 – Commitments and Contingencies
Commitments and Contingencies
Commitments and contingencies may arise in the ordinary course of business. Our material off-balance sheet commitments as of June 30, 2023 are discussed below.
As discussed in Note 5 - “Other Assets”, we have invested in an unconsolidated venture that is sponsored by an affiliate of our Manager. The unconsolidated venture is structured as a partnership, and we invested in the partnership as a limited partner. The unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible. Until the venture completes its liquidation, we are committed to fund $2.9 million in additional capital to cover future expenses should they occur.
Note 15 – Subsequent Events
Dividends
We declared the following dividends on August 2, 2023: a Series B Preferred Stock dividend of $0.4844 per share payable on September 27, 2023 to our stockholders of record as of September 5, 2023 and a Series C Preferred Stock dividend of $0.46875 per share payable on September 27, 2023 to our stockholders of record as of September 5, 2023.



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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In this quarterly report on Form 10-Q, or this "Quarterly Report," we refer to Invesco Mortgage Capital Inc. and its consolidated subsidiaries as "we," "us," "our Company," or "our," unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, Invesco Advisers, Inc., as our "Manager," and we refer to the indirect parent company of our Manager, Invesco Ltd. together with its consolidated subsidiaries (which does not include us), as "Invesco."
The following discussion should be read in conjunction with our condensed consolidated financial statements and the accompanying notes to our condensed consolidated financial statements, which are included in Item 1 of this Quarterly Report, as well as the information contained in our most recent Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Forward-Looking Statements
We make forward-looking statements in this Quarterly Report and other filings we make with the SEC within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the Agency RMBS and residential and commercial real estate market). When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “project,” “forecast” or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words. Factors that could cause actual results to differ from those expressed in our forward-looking statements include, but are not limited to:
•the effects of health endemics, including the COVID-19 pandemic;
•unfavorable or changing economic, market or political conditions;
•general volatility of financial markets and the effects of governmental responses, including actions and initiatives of the U.S. governmental agencies and changes to U.S. government policies, actions and initiatives of foreign governmental agencies and central banks, and monetary policy actions of the Federal Reserve, including actions relating to its agency mortgage-backed securities portfolio, and our ability to respond to and comply with such actions, initiatives and changes;
•our business and investment strategy;
•our investment portfolio and expected investments;
•the availability of investment opportunities in mortgage-related, real estate-related and other securities;
•the availability of U.S. Government Agency guarantees with regard to payments of principal and interest on securities;
•the impact of changes in the credit rating of the U.S. government;
•financing and advance rates for our target assets;
•the impact of changes in interest rates and interest rate spreads and the market value of our target assets;
•the potential interest rate mismatches between our target assets and our borrowings used to fund such investments;
•changes to our expected leverage;
•the availability of financing sources, including our ability to obtain additional financing arrangements and the terms of such arrangements;
•the adequacy of our cash flow from operations and borrowings, and our ability to maintain sufficient liquidity to meet our short-term liquidity needs;
•changes in prepayment rates on our target assets;
•the impact of any deficiencies in loss mitigation of third parties and related uncertainty in the timing of collateral disposition;
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•our reliance on third parties in connection with services related to our target assets;
•the effects of hedging instruments, including, but not limited to, the degree to which our hedging strategies may or may not protect us from interest rate and foreign currency exchange rate volatility;
•the degree to which derivative contracts expose us to contingent liabilities;
•rates of default or decreased recovery rates on our target assets;
•counterparty defaults;
•modifications to whole loans or loans underlying securities;
•our ability to comply with financial covenants in our financing arrangements;
•disruption of our information technology systems;
•the impact of potential data security breaches or other cyber-attacks or other disruptions;
•changes in governmental regulations, and changes in zoning, insurance, eminent domain and tax law and rates, and similar matters and our ability to respond to such changes;
•our ability to maintain our qualification as a real estate investment trust for U.S. federal income tax purposes;
•our ability to maintain our exception from the definition of “investment company” under the 1940 Act;
•the market price and trading volume of our capital stock;
•our ability to continue to generate taxable income and our ability to continue to make distributions to our stockholders in the future;
•our intention and ability to pay dividends;
•our dependence upon, and the relationship with, our Manager;
•the availability of qualified personnel from our Manager, and our Manager’s continued ability to find and retain such personnel;
•the accuracy of our estimates relating to fair value of our target assets and interest income recognition;
•our understanding of our competition;
•the impact of changes to U.S. GAAP;
•the adequacy of our disclosure controls and procedures and internal controls over financial reporting; and
•market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under the headings "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Report. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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Executive Summary
We are a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities (“MBS”) and other mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.
As of June 30, 2023, we were invested in:
•residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “Agency RMBS”);
•commercial mortgage-backed securities (“CMBS”) that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”);
•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”); and
•other real estate-related financing arrangements.
During the periods presented in this Quarterly Report, we also invested in:
•a commercial mortgage loan;
•to-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS; and
•U.S. Treasury securities.
We continuously evaluate new investment opportunities to complement our current investment portfolio by expanding our target assets and portfolio diversification.
We conduct our business through our wholly-owned subsidiary, IAS Operating Partnership L.P. (the “Operating Partnership”). We are externally managed and advised by our Manager, an indirect wholly-owned subsidiary of Invesco.
We have elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the 1940 Act.
Market Conditions
Macroeconomic factors that affect our business include interest rates, spread premiums, governmental policy initiatives, residential and commercial real estate prices, credit availability, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.
Of these macroeconomic factors, government policy initiatives, inflation, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the second quarter of 2023. Contributing factors included:
•Financial conditions improved throughout the second quarter, as credit spreads tightened, equity markets rallied, concerns around the U.S. debt ceiling were resolved and volatility eased. The positive environment seen across most risk assets was largely spurred by a continued moderation in most inflation measures. Headline consumer price index (“CPI”) fell from 5.0% to 3.0% during the quarter, while CPI (ex. food and energy) fell from 5.6% to 4.8%. Core personal consumption expenditures, however, remained anchored at 4.7%, and has been in a tight range between 4.6% and 4.7% since the beginning of the year. Investors continue to expect further drops in inflation, as Treasury inflation-protected securities breakeven rates dropped sharply during the quarter, with the two year breakeven ending the quarter at 2.1% and the five year breakeven ending at 2.2%.
•Interest rates were sharply higher during the quarter, largely reversing the rally spurred by the uncertainty surrounding the regional banking system that we saw in the first quarter. The yield on the two year Treasury increased by 87 basis points, to 4.90%, the yield on the five year Treasury increased 59 basis points, to 4.16% and the yield on the ten year Treasury finished at 3.84%, up 37 basis points on the quarter. The Federal Reserve’s Open Market Committee (“FOMC”) increased the Federal Funds target rate by 25 basis points in May, taking the target to a range of 5.0% to 5.25%.
•Agency mortgage performance improved during the second quarter as lower coupon valuations recovered a portion of their underperformance in March, while higher coupon valuations were largely unchanged as interest rate volatility remained elevated. As a result, current coupon spreads ended modestly wider while performance versus Treasuries was
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slightly positive. In addition, premiums on specified pool collateral declined as a result of sharply higher interest rates during the quarter. Although modestly lower levels of interest rate volatility led to increased demand for risk assets by investors, this demand was largely offset by faster than anticipated sales of failed bank assets by the FDIC and the increased supply caused by a stronger housing market.
The following market conditions were also notable for the company in the second quarter of 2023:
•The employment picture remained strong as gains in non-farm payrolls averaged 244,000 per month. The unemployment rate was slightly higher, ending the quarter up 0.1 at 3.6%.
•Risk assets performed well during the quarter. The S&P 500 gained 8.3%, while the NASDAQ was up 12.8%. Likewise, credit spreads across investment grade credit, high yield and emerging market debt all finished the quarter tighter. Credit spreads on debt backed by commercial real estate mortgage loans also finished the quarter tighter, buoyed by increased investor risk appetite.
•Despite favorable moves in CMBS valuations, increasing vacancy rates, declining real estate values, increased borrowing costs, and tighter mortgage lending standards remain challenges for the sector. Meanwhile, reevaluation of tenant needs and a corresponding increase in the amount of available sublease space has created unique headwinds for the office sector. The number of CMBS loans residing with special servicers increased across property types.
•Non-Agency RMBS credit spreads tightened during the quarter as low issuance and compelling relative value drove positive market technicals. The resilience of home prices through the first half of the year despite high mortgage rates and historically low affordability further supported investor risk appetite. Despite the potential for a slowing economy, borrower defaults are likely to remain contained given strong loan underwriting and high levels of borrower equity.
Outlook
Moving into the third quarter of 2023, the FOMC’s monetary policy tightening cycle is expected to conclude by the end of the year, with one or two more 25 basis point increases in the Fed Funds Rate reflected in the futures market. While the timing remains uncertain, the potential decline in interest rate volatility in conjunction with the end of the tightening cycle should be supportive for higher coupon Agency RMBS valuations. Furthermore, Agency RMBS supply and demand technicals are expected to improve in the second half of the year, as the liquidation of assets from the FDIC nears its conclusion and organic net supply declines. Commercial banks should also soon receive greater clarity on their regulatory environment, which could encourage further deployment of capital away from loans and into lower risk weighted assets such as Agency RMBS. Finally, valuations in production coupon Agency RMBS remain historically attractive, and funding capacity is robust. Taken together, we believe the decline in interest rate volatility and a supportive technical environment, combined with compelling valuations and favorable funding conditions, represent an attractive investment opportunity in Agency RMBS for the remainder of 2023.


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Investment Activities
The table below shows the composition of our investment portfolio as of June 30, 2023, December 31, 2022 and June 30, 2022.
As of
$ in thousands June 30, 2023 December 31, 2022 June 30, 2022
Agency RMBS:
30 year fixed-rate, at fair value 5,383,997  4,661,737  3,802,451 
Agency CMO, at fair value 78,477  84,956  60,808 
Non-Agency CMBS, at fair value 36,730  36,787  43,644 
Non-Agency RMBS, at fair value 8,256  8,413  8,262 
Commercial loan, at fair value —  —  23,478 
Investments in unconsolidated ventures 503  552  3,622 
Subtotal 5,507,963  4,792,445  3,942,265 
TBAs, at implied cost basis (1)
 —  1,437  466,559 
Total investment portfolio, including TBAs 5,507,963  4,793,882  4,408,824 
(1)Our presentation of TBAs in the table above represents management's view of our investment portfolio and does not reflect how we record TBAs on our condensed consolidated balance sheets under U.S. GAAP. Under U.S. GAAP, we record TBAs that we do not intend to physically settle on the contractual settlement date as derivative financial instruments. We value TBAs on our condensed consolidated balance sheets at net carrying value, which represents the difference between the fair market value and the implied cost basis of the TBAs. For further details of our U.S GAAP accounting for TBAs, refer to Note 8 “Derivatives and Hedging Activities” in Part I. Item 1 of this report on Form 10-Q. Our TBA dollar roll transactions are a form of off-balance sheet financing. For further information on how management evaluates our at-risk leverage, see Non-GAAP Financial Measures below.
We sold $1.5 billion and purchased $2.4 billion of Agency RMBS during the six months ended June 30, 2023. As of June 30, 2023, our holdings of 30 year fixed-rate Agency RMBS represented approximately 98% of our total investment portfolio, including TBAs, versus 97% as of December 31, 2022 and 86% as of June 30, 2022. Our 30 year fixed-rate Agency RMBS holdings as of June 30, 2023, December 31, 2022 and June 30, 2022 consisted of specified pools with coupon distributions as shown in the table below.
As of
June 30, 2023 December 31, 2022 June 30, 2022
$ in thousands Fair Value Percentage Fair Value Percentage Fair Value Percentage
3.0% —  —  % —  —  % 636,413  16.7  %
3.5% —  —  % —  —  % 900,002  23.7  %
4.0% 871,876  16.2  % —  —  % 911,599  24.0  %
4.5% 1,400,379  26.0  % 1,392,304  29.9  % 1,011,921  26.6  %
5.0% 1,588,177  29.5  % 1,694,939  36.4  % 342,516  9.0  %
5.5% 1,523,565  28.3  % 1,574,494  33.7  % —  —  %
Total 30 year fixed-rate Agency RMBS 5,383,997  100.0  % 4,661,737  100.0  % 3,802,451  100.0  %
Our purchases of Agency RMBS have been primarily focused on specified pools with attractive prepayment profiles. We seek to capitalize on the impact of prepayments on our investment portfolio by purchasing specified pools with characteristics that optimize borrower incentive to prepay for both our premium and discount priced investments. The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of June 30, 2023, December 31, 2022 and June 30, 2022.
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As of
June 30, 2023 December 31, 2022 June 30, 2022
$ in thousands Fair Value Percentage Fair Value Percentage Fair Value Percentage
Specified pool characteristic:
Geographic location 1,508,513  28.0  % 1,302,391  27.9  % 949,527  25.0  %
Loan balance 1,504,068  27.9  % 1,033,014  22.2  % 1,721,069  45.3  %
Generic —  —  % 158,230  3.4  % —  —  %
High loan-to-value (“LTV”) ratio
 1,087,052  20.2  % 750,724  16.1  % 256,240  6.7  %
Low credit score 1,284,364  23.9  % 1,417,378  30.4  % 875,615  23.0  %
Total 30 year fixed-rate Agency RMBS 5,383,997  100.0  % 4,661,737  100.0  % 3,802,451  100.0  %
We have invested in TBAs as an alternative means of investing in and financing Agency RMBS. As of June 30, 2023 and December 31, 2022, we had no investments or immaterial investments in TBAs, versus 11% of our investment portfolio as of June 30, 2022. We decreased the allocation to TBAs as implied financing rates in the Agency RMBS TBA dollar roll market increased more than those available in the repurchase market for most coupons.
As of June 30, 2023; December 31, 2022 and June 30, 2022, our holdings of non-Agency CMBS represented approximately 1% of our total investment portfolio, including TBAs. Our non-Agency CMBS portfolio is comprised of fixed-rate securities that were rated single-A (or equivalent) or higher by a nationally recognized statistical rating organization as of June 30, 2023. Approximately 71% of non-Agency CMBS were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of June 30, 2023.
As of June 30, 2023; December 31, 2022 and June 30, 2022, our holdings of non-Agency RMBS represented less than 1% of our total investment portfolio, including TBAs.
As of December 31, 2022 and June 30, 2022, we held investments in two unconsolidated ventures that were managed by an affiliate of our Manager. Our joint venture whose net assets were denominated in euros was dissolved during the first quarter of 2023. Our remaining unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible. Until the venture completes its liquidation, we are committed to fund $2.9 million in additional capital to cover future expenses should they occur.
Financing and Other Liabilities
We finance the majority of investment portfolio through repurchase agreements. Repurchase agreements are generally settled on a short-term basis, usually from one to six months, and bear interest at rates that are expected to move in close relationship to the secured overnight financing rate (“SOFR”).
The following table presents the amount of collateralized borrowings outstanding under repurchase agreements as of the end of each quarter, the average amount outstanding during the quarter and the maximum balance outstanding during the quarter.
$ in thousands Collateralized borrowings under repurchase agreements
Quarter Ended Quarter-end balance
Average quarterly balance (1)
Maximum balance (2)
June 30, 2022 3,262,530  4,059,917  4,902,191 
September 30, 2022 3,887,291  3,907,505  4,165,996 
December 31, 2022 4,234,823  3,825,218  4,234,823 
March 31, 2023 4,814,700  4,734,819  4,814,700 
June 30, 2023 4,959,388  4,791,720  4,959,388 
(1)Average quarterly balance for each period is based on month-end balances.
(2)Amount represents the maximum borrowings at month-end during each of the respective periods.
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Hedging Instruments
We enter into interest rate swap agreements that are designed to mitigate the effects of changes in interest rates for a portion of our borrowings. Under these swap agreements, we generally pay fixed interest rates and receive floating interest rates indexed to SOFR. To a lesser extent, we also enter into interest rate swap agreements whereby we make floating interest rate payments indexed to SOFR and receive fixed interest rate payments as part of our overall risk management strategy.
We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes. During the six months ended June 30, 2023, we terminated existing interest rate swaps with a notional amount of $775.0 million. In addition, one of our forward starting swaps held as of December 31, 2022 with a notional amount of $500.0 million began to bear interest during the six months ended June 30, 2023. The remainder of our forward starting swaps begin to bear interest in July 2023. Daily variation margin payment for interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operations. We recorded net gains of $96.6 million and $52.2 million on interest rate swaps for the three and six months ended June 30, 2023, respectively, primarily due to changes in forward interest rate expectations.
We have historically entered into currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on investments denominated in foreign currencies. We did not have any currency forward contracts outstanding as of June 30, 2023 or December 31, 2022.
Capital Activities
As of June 30, 2023, we may sell up to 10,181,292 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents. During the three months ended June 30, 2023, we sold 2,888,639 shares of common stock under our equity distribution agreement for proceeds of $31.0 million, net of approximately $421,000 in commissions and fees. During the six months ended June 30, 2023, we sold 5,818,708 shares of common stock under our equity distribution agreement for proceeds of $66.8 million, net of approximately $903,000 in commissions and fees. We did not sell any shares of common stock under equity distribution agreements during the three and six months ended June 30, 2022.
For information on dividends declared during the six months ended June 30, 2023 and 2022, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I. Item 1 of this report on Form 10-Q.
During the six months ended June 30, 2023, we did not repurchase any shares of our common stock.
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the three and six months ended June 30, 2023, we repurchased and retired 37,788 shares of Series B Preferred Stock and 42,696 shares of Series C Preferred Stock. During the three and six months ended June 30, 2022, we repurchased and retired 43,820 shares of Series B Preferred Stock and 620,141 shares of Series C Preferred Stock. As of June 30, 2023, we had authority to purchase 1,299,846 additional shares of our Series B Preferred Stock and 1,273,774 additional shares of our Series C Preferred Stock under the current share repurchase program.
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Book Value per Common Share
We calculate book value per common share as follows.
As of
In thousands except per share amounts June 30, 2023 December 31, 2022
Numerator (adjusted equity):
Total equity 840,884  804,075 
Less: Liquidation preference of Series B Preferred Stock (112,496) (113,441)
Less: Liquidation preference of Series C Preferred Stock (194,344) (195,412)
Total adjusted equity 534,044  495,222 
Denominator (number of shares):
Common stock outstanding 44,580  38,711 
Book value per common share 11.98  12.79 
Our book value per common share decreased 6.3% as of June 30, 2023 compared to December 31, 2022 as modest outperformance in higher coupon Agency RMBS relative to Treasuries has been offset by further inversion of the yield curve, elevated interest rate volatility given changes in the expectation for near-term monetary policy and declines in premiums on our specified pool investments. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates that are disclosed in our most recent Form 10-K for the year ended December 31, 2022.
Recent Accounting Standards
None.

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Results of Operations
The table below presents information from our condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands, except share data 2023 2022 2023 2022
Interest income
Mortgage-backed and other securities 71,428  43,994  140,715  85,631 
Commercial loan —  561  —  1,098 
Total interest income 71,428  44,555  140,715  86,729 
Interest expense
Repurchase agreements 59,022  3,455  108,748  1,351 
Total interest expense 59,022  3,455  108,748  1,351 
Net interest income 12,406  41,100  31,967  85,378 
Other income (loss)
Gain (loss) on investments, net (99,679) (324,876) (47,723) (829,264)
(Increase) decrease in provision for credit losses (169) —  (169) — 
Equity in earnings (losses) of unconsolidated ventures —  (352) 2  (281)
Gain (loss) on derivative instruments, net 96,624  181,742  51,729  420,602 
Other investment income (loss), net 27  (11) (66) 44 
Total other income (loss) (3,197) (143,497) 3,773  (408,899)
Expenses
Management fee – related party 3,168  4,619  6,147  9,893 
General and administrative 1,963  2,519  4,052  4,543 
Total expenses 5,131  7,138  10,199  14,436 
Net income (loss) 4,078  (109,535) 25,541  (337,957)
Dividends to preferred stockholders (5,840) (8,100) (11,702) (16,494)
Gain on repurchase and retirement of preferred stock 364  1,491  364  1,491 
Net income (loss) attributable to common stockholders (1,398) (116,144) 14,203  (352,960)
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic (0.03) (3.52) 0.35  (10.70)
Diluted (0.03) (3.52) 0.35  (10.70)
Weighted average number of shares of common stock:
Basic 42,391,477  32,990,319  41,007,107  32,987,678 
Diluted 42,391,477  32,990,319  41,008,028  32,987,678 

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Interest Income and Average Earning Asset Yields
The table below presents information related to our average earning assets and earning asset yields for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Average earning assets (1)
 5,285,794  4,663,313  5,265,654  5,827,797 
Average earning asset yields (2)
 5.41  % 3.82  % 5.34  % 2.98  %
(1)Average balances for each period are based on weighted month-end balances.
(2)Average earning asset yields for the period were calculated by dividing interest income, including amortization of premiums and discounts, by average earning assets based on the amortized cost of the investments. All yields are annualized.
Our primary source of income is interest earned on our investment portfolio. We had average earning assets of $5.3 billion for the three months ended June 30, 2023 (June 30, 2022: $4.7 billion) and $5.3 billion for the six months ended June 30, 2023 (June 30, 2022: $5.8 billion). Average earnings assets were higher for the three months ended June 30, 2023 relative to the same period in 2022 primarily due to higher leverage. The decrease in average earning assets for the six months ended June 30, 2023 compared to 2022 is primarily due to a reduction in the size of our investment portfolio and related repurchase agreement borrowings during the first half of 2022 given expectations that elevated market volatility could result in lower valuations on our assets, while maintaining appropriate levels of leverage following declines in stockholders' equity. Average earning asset yields increased for the three and six months ended June 30, 2023 compared to 2022 primarily due to our rotation into higher yielding Agency RMBS.
We earned total interest income of $71.4 million and $140.7 million for the three and six months ended June 30, 2023, respectively (June 30, 2022: $44.6 million and $86.7 million). Our interest income includes coupon interest and net (premium amortization) discount accretion on mortgage-backed and other securities as well as interest income on our commercial loan as shown in the table below.
  Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Interest Income
Mortgage-backed and other securities - coupon interest 70,119  43,220  139,235  91,449 
Mortgage-backed and other securities - net (premium amortization) discount accretion 1,309  774  1,480  (5,818)
Mortgage-backed and other securities - interest income 71,428  43,994  140,715  85,631 
Commercial loan —  561  —  1,098 
Total interest income 71,428  44,555  140,715  86,729 
Mortgage-backed and other securities interest income increased $27.4 million and $55.1 million for the three and six months ended June 30, 2023, respectively, compared to 2022 primarily due to a 159 and 236 basis point increase in average earning asset yields, respectively. Our commercial loan investment was fully repaid in October 2022.
Prepayment Speeds
Our RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income. Expected future prepayment speeds are estimated on a quarterly basis. Generally, in an environment of falling interest rates, prepayment speeds will increase as homeowners are more likely to prepay their existing mortgage and refinance into a lower borrowing rate. In an environment of rising interest rates, prepayment speeds will generally decrease as homeowners are not as incentivized to refinance. If the actual prepayment speed during the period is faster than estimated, the amortization on securities purchased at a premium to par value will be accelerated, resulting in lower interest income recognized. Conversely, for securities purchased at a discount to par value, interest income will be reduced in periods where prepayment speeds were slower than expected.
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The following table presents net (premium amortization) discount accretion recognized on our mortgage-backed and other securities portfolio for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Agency RMBS 1,138  422  1,152  (6,506)
Non-Agency CMBS 296  509  587  1,012 
Non-Agency RMBS (125) (132) (259) (283)
U.S. Treasury Securities —  (25) —  (41)
Net (premium amortization) discount accretion 1,309  774  1,480  (5,818)
Net discount accretion was $1.3 million for the three months ended June 30, 2023 compared to $774,000 for the same period in 2022. Net discount accretion was $1.5 million for the six months ended June 30, 2023 compared to net premium amortization of $5.8 million for the same period in 2022. The change in net (premium amortization) discount accretion for the six months ended June 30, 2023 compared to 2022 was primarily the result of repositioning our Agency RMBS portfolio into securities with lower book prices.
Our interest income is subject to interest rate risk. Refer to Item 3. "Quantitative and Qualitative Disclosures about Market Risk" for more information relating to interest rate risk and its impact on our operating results.
Interest Expense and Cost of Funds
The table below presents information related to our borrowings and cost of funds for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Total average borrowings (1)
 4,791,720  4,059,423  4,764,748  5,133,591 
Maximum borrowings during the period (2)
 4,959,388  4,902,191  4,959,388  6,636,913 
Cost of funds (3)
 4.93  % 0.34  % 4.56  % 0.05  %
(1)Average borrowings for each period are based on weighted month-end balances.
(2)Amount represents the maximum borrowings at month-end during each of the respective periods.
(3)Average cost of funds is calculated by dividing annualized interest expense including amortization of net deferred gain (loss) on de-designated interest rate swaps by our average borrowings.
Total average borrowings increased $732.3 million for the three months ended June 30, 2023 compared to the same period in 2022 primarily due to higher leverage. Total average borrowings decreased $368.8 million for the six months ended June 30, 2023 compared to the same period in 2022 primarily due to a reduction in the size of our investment portfolio and related repurchase agreement borrowings during the first half of 2022 given expectations that elevated market volatility could result in lower valuations on our assets, while maintaining appropriate levels of leverage following declines in stockholders' equity. Our average cost of funds increased 459 and 451 basis points for the three and six months ended June 30, 2023, respectively, compared to 2022 as the FOMC has consistently raised the Federal Funds target rate from a range of 0.0% to 0.25% as of January 1, 2022 to a range of 5.0% to 5.25% as of June 30, 2023.
The table below presents the components of interest expense for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Interest Expense
Interest expense on repurchase agreement borrowings 62,223  8,257  116,443  11,349 
Amortization of net deferred (gain) loss on de-designated interest rate swaps (3,201) (4,802) (7,695) (9,998)
Repurchase agreements interest expense 59,022  3,455  108,748  1,351 
Total interest expense 59,022  3,455  108,748  1,351 
Our repurchase agreements interest expense, which equals our total interest expense, increased $55.6 million and $107.4 million for the three and six months ended June 30, 2023, respectively, compared to 2022 primarily due to a higher cost of funds.
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Our repurchase agreements interest expense as reported in our condensed consolidated statement of operations includes amortization of net deferred gains and losses on de-designated interest rate swaps as summarized in the table above. Amortization of net deferred gains on de-designated interest rate swaps decreased our total interest expense by $3.2 million and $7.7 million during the three and six months ended June 30, 2023 respectively, and $4.8 million and $10.0 million during the three and six months ended June 30, 2022, respectively. Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. We expect that the remaining $2.7 million of net deferred gains on de-designated interest rate swaps will be reclassified from accumulated other comprehensive income and recorded as a decrease to interest expense over a period of time through December 15, 2023.
Net Interest Income
The table below presents the components of net interest income for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Interest Income
Mortgage-backed and other securities 71,428  43,994  140,715  85,631 
Commercial loan —  561  —  1,098 
Total interest income 71,428  44,555  140,715  86,729 
Interest Expense
Interest expense on repurchase agreement borrowings 62,223  8,257  116,443  11,349 
Amortization of net deferred (gain) loss on de-designated interest rate swaps (3,201) (4,802) (7,695) (9,998)
Repurchase agreements interest expense 59,022  3,455  108,748  1,351 
Total interest expense 59,022  3,455  108,748  1,351 
Net interest income 12,406  41,100  31,967  85,378 
Net interest rate margin 0.48  % 3.48  % 0.78  % 2.93  %
Our net interest income, which equals interest income less interest expense, totaled $12.4 million and $32.0 million for the three and six months ended June 30, 2023, respectively (June 30, 2022: $41.1 million and $85.4 million). Our net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds for the period, was 0.48% and 0.78% for the three and six months ended June 30, 2023, respectively (June 30, 2022: 3.48% and 2.93%). The decrease in net interest income for the three and six months ended June 30, 2023 compared to 2022 was primarily due to a higher cost of funds related to increases in the Federal Funds target rate, which was partially offset by higher interest income. The decrease in net interest rate margin for the three and six months ended June 30, 2023 compared to 2022 was primarily due to a higher cost of funds, which was partially offset by our rotation into higher yielding Agency RMBS. Our short-term borrowings are generally more sensitive to changes in interest rates than our investment portfolio, which is largely comprised of 30 year fixed-rate Agency RMBS.
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Gain (Loss) on Investments, net
The table below summarizes the components of gain (loss) on investments, net for the three and six months ended June 30, 2023 and 2022.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Net realized gains (losses) on sale of MBS (10,484) (535,056) (24,249) (854,026)
Net unrealized gains (losses) on MBS accounted for under the fair value option (89,195) 224,464  (23,474) 58,997 
Net unrealized gains (losses) on commercial loan —  87  —  (37)
Net unrealized gains (losses) on U.S. Treasury securities —  19,827  —  — 
Net realized gains (losses) on U.S. Treasury securities —  (34,198) —  (34,198)
Total gain (loss) on investments, net (99,679) (324,876) (47,723) (829,264)
During the three and six months ended June 30, 2023, we sold MBS and realized net losses of $10.5 million and $24.2 million, respectively (June 30, 2022: net losses of $535.1 million and $854.0 million). Net realized losses during the three and six months ended June 30, 2023 and 2022 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.
We have elected the fair value option for all of our MBS purchased on or after September 1, 2016. Before September 1, 2016, we had also elected the fair value option for our non-Agency RMBS interest-only securities. Under the fair value option, changes in fair value are recognized in income in the condensed consolidated statements of operations and are reported as a component of gain (loss) on investments, net. As of June 30, 2023, $5.5 billion (December 31, 2022: $4.7 billion) or 99% (December 31, 2022: 99%) of our MBS are accounted for under the fair value option.
We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $89.2 million and $23.5 million in the three and six months ended June 30, 2023, respectively, compared to net unrealized gains of $224.5 million and $59.0 million in the three and six months ended June 30, 2022, respectively. Net unrealized losses in the three and six months ended June 30, 2023 were primarily due to lower valuations on our Agency RMBS given higher interest rates and wider spreads on our holdings. Net unrealized gains in the three and six months ended June 30, 2022 were primarily driven by reversals of unrealized losses upon sale.
We recorded an unrealized gain of $87,000 and an unrealized loss of $37,000 on our commercial loan investment in the three and six months ended June 30, 2022, respectively. We valued our commercial loan based upon a valuation from an independent pricing service.
We did not hold any U.S. Treasury securities during the six months ended June 30, 2023 . We recorded net realized and unrealized losses of $14.4 million and $34.2 million on U.S. Treasury securities during the three and six months ended June 30, 2022, respectively, due to rising interest rates.
(Increase) Decrease in Provision for Credit Losses
As of June 30, 2023, $42.4 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2022: $42.5 million). During the three and six months ended June 30, 2023, we recorded a $169,000 provision for credit losses on a single non-Agency CMBS based on a comparison of the security's amortized cost basis to discounted expected cash flows. We did not record any provisions for credit losses during the three and six months ended June 30, 2022.
Equity in Earnings (Losses) of Unconsolidated Ventures
For the three and six months ended June 30, 2023 we recorded equity in earnings of unconsolidated ventures of $2,000. (June 30, 2022: equity in losses of $352,000 and $281,000, respectively). Earnings and losses of unconsolidated ventures were driven primarily by the underlying portfolio investments.
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Gain (Loss) on Derivative Instruments, net
We record all derivatives on our condensed consolidated balance sheets at fair value. Changes in the fair value of our derivatives are recorded in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations. Net interest paid or received under our interest rate swaps is also recognized in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations.
The tables below summarize our realized and unrealized gain (loss) on derivative instruments, net for the following periods.
$ in thousands
 Three months ended June 30, 2023
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps 27,893  63,437  5,312  96,642 
Currency Forward Contracts (18) —  —  (18)
TBAs (929) —  929  — 
Total 26,946  63,437  6,241  96,624 
$ in thousands
 Three months ended June 30, 2022
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps 209,913  13,566  (2,966) 220,513 
Currency Forward Contracts 486  —  (177) 309 
TBAs (69,167) —  30,087  (39,080)
Total 141,232  13,566  26,944  181,742 
$ in thousands
 Six months ended June 30, 2023
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps (63,056) 117,901  (2,656) 52,189 
Currency Forward Contracts (18) —  —  (18)
TBAs (1,880) —  1,438  (442)
Total (64,954) 117,901  (1,218) 51,729 
$ in thousands
 Six months ended June 30, 2022
Derivative
not designated as
hedging instrument		 Realized gain (loss) on derivative instruments, net  Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net
Interest Rate Swaps 553,222  14,850  (14,365) 553,707 
Currency Forward Contracts 679  —  (218) 461 
TBAs (129,240) —  (4,326) (133,566)
Total 424,661  14,850  (18,909) 420,602 

During the six months ended June 30, 2023, we terminated existing interest rate swaps with a notional amount of $775.0 million. In addition, one of our forward starting swaps held as of December 31, 2022 with a notional amount of $500.0 million began to bear interest during the six months ended June 30, 2023. The remainder of our forward starting swaps begin to bear interest in July 2023. We recorded net gains of $96.6 million and $52.2 million on interest rate swaps for the three and six months ended June 30, 2023, respectively, (June 30, 2022: $220.5 million and $553.7 million) primarily due to changes in forward interest rate expectations.
As of June 30, 2023, we had $5.0 billion of repurchase agreement borrowings with a weighted average remaining maturity of 49 days. We typically refinance each repurchase agreement at market interest rates upon maturity. We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense.
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As of June 30, 2023 and December 31, 2022, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR.
$ in thousands As of June 30, 2023 As of December 31, 2022
Derivative instrument Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity
Interest Rate Swaps (1)
 6,300,000  0.45  % 5.09  % 5.5 5,800,000  0.45  % 4.30  % 6.3
(1)Excludes $475.0 million notional amount of interest rate swaps with forward start dates as of June 30, 2023 that will receive floating interest based upon SOFR (December 31, 2022: $975.0 million). As of June 30, 2023, these interest rate swaps had a weighted average maturity of 30.1 years (December 31, 2022: 16.5 years) and a weighted average fixed pay rate of 1.33% (December 31, 2022: 0.89%).
As of June 30, 2023 and December 31, 2022, we held the following interest rate swaps whereby we pay floating rate interest based upon SOFR and receive fixed rate interest.
$ in thousands As of June 30, 2023 As of December 31, 2022
Derivative instrument Notional Amount Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity Notional Amount Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity
Interest Rate Swaps (1)
 1,575,000  5.09  % 2.69  % 9.9 2,350,000  4.30  % 2.78  % 9.3
(1)Excludes $275.0 million notional amount of interest rate swaps with forward start dates as of June 30, 2023 that will pay floating interest based upon SOFR (December 31, 2022: $275.0 million). As of June 30, 2023, these interest rate swaps had a weighted average maturity of 15.5 years (December 31, 2022: 16.0 years) and a weighted average fixed receive rate of 2.63% (December 31, 2022: 2.63%).
We historically used currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates. As of June 30, 2023 and December 31, 2022, we did not have any currency forward contracts outstanding. During the three and six months ended June 30, 2022, we settled currency forward contracts of €6.5 million and €24.1 million, respectively, or $7.4 million and $27.8 million, respectively, in notional amount related to our investment in an unconsolidated venture and realized net gains of $486,000 and $679,000, respectively.
We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS. As of June 30, 2023 and December 31, 2022, we had no investments or immaterial investments in TBAs. We recorded $442,000 of net realized and unrealized losses on TBAs during the six months ended June 30, 2023. We recorded $39.1 million and $133.6 million of net realized and unrealized losses on TBAs during the three and six months ended June 30, 2022, respectively. Net realized and unrealized losses on TBAs for the three and six months ended June 30, 2022 primarily reflect rising interest rates, in addition to wider interest rate spreads on Agency RMBS.
Other Investment Income (Loss), net
Our other investment income (loss), net during the three and six months ended June 30, 2023 and 2022 consisted of foreign currency transaction gains and losses. Other investment income (loss) for the six months ended June 30, 2023 also includes the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.
Expenses
We incurred management fees of $3.2 million and $6.1 million for the three and six months ended June 30, 2023, respectively (June 30, 2022: $4.6 million and $9.9 million). Management fees decreased for the three and six months ended June 30, 2023 compared to the same periods in 2022 due to a lower stockholders' equity management fee base. Refer to Note 11 – "Related Party Transactions" of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.
Our general and administrative expenses not covered under our management agreement amounted to $2.0 million and $4.1 million for the three and six months ended June 30, 2023, respectively (June 30, 2022: $2.5 million and $4.5 million). General and administrative expenses not covered under our management agreement primarily consist of directors and officers insurance, legal costs, accounting, auditing and tax services, filing fees and miscellaneous general and administrative costs.
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Gain on Repurchase and Retirement of Preferred Stock
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the three and six months ended June 30, 2023, we repurchased and retired 37,788 shares of Series B Preferred Stock and 42,696 shares of Series C Preferred Stock. During the three and six months ended June 30, 2022, we repurchased and retired 43,820 shares of Series B Preferred Stock and 620,141 shares of Series C Preferred Stock. Gains on repurchases and retirements of preferred stock represent the difference between the consideration transferred and the carrying value of the preferred stock.
Net Income (Loss) attributable to Common Stockholders
For the three months ended June 30, 2023, our net loss attributable to common stockholders was $1.4 million (June 30, 2022: $116.1 million ) or $0.03 basic and diluted net loss per average share available to common stockholders (June 30, 2022: $3.52). The change in net loss attributable to common stockholders was primarily due to (i) net losses on investments of $99.7 million in the 2023 period compared to $324.9 million in the 2022 period; (ii) net gains on derivative instruments of $96.6 million in the 2023 period compared to $181.7 million in the 2022 period; and (iii) a $28.7 million decrease in net interest income.
For the six months ended June 30, 2023, our net income attributable to common stockholders was $14.2 million (June 30, 2022: $353.0 million net loss attributable to common stockholders) or $0.35 basic and diluted net income per average share available to common stockholders (June 30, 2022: $10.70 basic and diluted net loss per average share available to common stockholders). The change in net income (loss) attributable to common stockholders was primarily due to (i) net losses on investments of $47.7 million in the 2023 period compared to $829.3 million in the 2022 period; (ii) net gains on derivative instruments of $51.7 million in the 2023 period compared to $420.6 million in the 2022 period; and (iii) a $53.4 million decrease in net interest income.
For further information on the changes in net gain (loss) on investments, net gain (loss) on derivative instruments, and changes in net interest income, see preceding discussion under “Gain (Loss) on Investments, net”, “Gain (Loss) on Derivative Instruments, net” and “Net Interest Income”.
Non-GAAP Financial Measures
The table below shows the non-GAAP financial measures we use to analyze our operating results and the most directly comparable U.S. GAAP measures. We believe these non-GAAP measures are useful to investors in assessing our performance as discussed further below.
Non-GAAP Financial Measure Most Directly Comparable U.S. GAAP Measure
Earnings available for distribution (and by calculation, earnings available for distribution per common share) Net income (loss) attributable to common stockholders (and by calculation, basic earnings (loss) per common share)
Effective interest expense (and by calculation, effective cost of funds) Total interest expense (and by calculation, cost of funds)
Effective net interest income (and by calculation, effective interest rate margin) Net interest income (and by calculation, net interest rate margin)
Economic debt-to-equity ratio Debt-to-equity ratio
The non-GAAP financial measures used by management should be analyzed in conjunction with U.S. GAAP financial measures and should not be considered substitutes for U.S. GAAP financial measures. In addition, the non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of our peer companies.
Earnings Available for Distribution
Our business objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation. We use earnings available for distribution as a measure of our investment portfolio’s ability to generate income for distribution to common stockholders and to evaluate our progress toward meeting this objective. We calculate earnings available for distribution as U.S. GAAP net income (loss) attributable to common stockholders adjusted for (gain) loss on investments, net; realized (gain) loss on derivative instruments, net; unrealized (gain) loss on derivative instruments, net; TBA dollar roll income; gain on repurchase and retirement of preferred stock, foreign currency gains (losses), net and amortization of net deferred (gain) loss on de-designated interest rate swaps.
By excluding the gains and losses discussed above, we believe the presentation of earnings available for distribution provides a consistent measure of operating performance that investors can use to evaluate our results over multiple reporting periods and, to a certain extent, compare to our peer companies.
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However, because not all of our peer companies use identical operating performance measures, our presentation of earnings available for distribution may not be comparable to other similarly titled measures used by our peer companies. We exclude the impact of gains and losses when calculating earnings available for distribution because (i) when analyzed in conjunction with our U.S. GAAP results, earnings available for distribution provides additional detail of our investment portfolio’s earnings capacity and (ii) gains and losses are not accounted for consistently under U.S. GAAP. Under U.S. GAAP, certain gains and losses are reflected in net income whereas other gains and losses are reflected in other comprehensive income. For example, a portion of our mortgage-backed securities are classified as available-for-sale securities, and we record changes in the valuation of these securities in other comprehensive income on our condensed consolidated balance sheets. We elected the fair value option for our mortgage-backed securities purchased on or after September 1, 2016, and changes in the valuation of these securities are recorded in other income (loss) in our condensed consolidated statements of operations. In addition, certain gains and losses represent one-time events. We may add and have added additional reconciling items to our earnings available for distribution calculation as appropriate.
To maintain our qualification as a REIT, U.S. federal income tax law generally requires that we distribute at least 90% of our REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains. We have historically distributed at least 100% of our REIT taxable income. Because we view earnings available for distribution as a consistent measure of our investment portfolio's ability to generate income for distribution to common stockholders, earnings available for distribution is one metric, but not the exclusive metric, that our board of directors uses to determine the amount, if any, and the payment date of dividends on our common stock. However, earnings available for distribution should not be considered as an indication of our taxable income, a guaranty of our ability to pay dividends or as a proxy for the amount of dividends we may pay, as earnings available for distribution excludes certain items that impact our cash needs.
Earnings available for distribution is an incomplete measure of our financial performance and there are other factors that impact the achievement of our business objective. We caution that earnings available for distribution should not be considered as an alternative to net income (determined in accordance with U.S. GAAP) or as an indication of our cash flow from operating activities (determined in accordance with U.S. GAAP), a measure of our liquidity or as an indication of amounts available to fund our cash needs.
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The table below provides a reconciliation of U.S. GAAP net income (loss) attributable to common stockholders to earnings available for distribution for the following periods.
  Three Months Ended June 30, Six Months Ended June 30,
$ in thousands, except per share data 2023 2022 2023 2022
Net income (loss) attributable to common stockholders (1,398) (116,144) 14,203  (352,960)
Adjustments:
(Gain) loss on investments, net 99,679  324,876  47,723  829,264 
Realized (gain) loss on derivative instruments, net (1)
 (26,946) (141,232) 64,954  (424,661)
Unrealized (gain) loss on derivative instruments, net (1)
 (6,241) (26,944) 1,218  18,909 
TBA dollar roll income (2)
 —  11,855  697  25,256 
Gain on repurchase and retirement of preferred stock (364) (1,491) (364) (1,491)
Foreign currency (gains) losses, net (3)
 (27) 11  66  (44)
Amortization of net deferred (gain) loss on de-designated interest rate swaps (4)
(3,201) (4,802) (7,695) (9,998)
Subtotal 62,900  162,273  106,599  437,235 
Earnings available for distribution 61,502  46,129  120,802  84,275 
Basic income (loss) per common share (0.03) (3.52) 0.35  (10.70)
Earnings available for distribution per common share (5)
 1.45  1.40  2.95  2.55 
(1)U.S. GAAP gain (loss) on derivative instruments, net on the condensed consolidated statements of operations includes the following components.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Realized gain (loss) on derivative instruments, net 26,946  141,232  (64,954) 424,661 
Unrealized gain (loss) on derivative instruments, net 6,241  26,944  (1,218) (18,909)
Contractual net interest income (expense) on interest rate swaps 63,437  13,566  117,901  14,850 
Gain (loss) on derivative instruments, net 96,624  181,742  51,729  420,602 
(2)A TBA dollar roll is a series of derivative transactions where TBAs with the same specified issuer, term and coupon but different settlement dates are simultaneously bought and sold. The TBA settling in the later month typically prices at a discount to the TBA settling in the earlier month. TBA dollar roll income represents the price differential between the TBA price for current month settlement versus the TBA price for forward month settlement. We include TBA dollar roll income in earnings available for distribution because it is the economic equivalent of interest income on the underlying Agency RMBS, less an implied financing cost, over the forward settlement period. TBA dollar roll income is a component of gain (loss) on derivative instruments, net on our condensed consolidated statements of operations.
(3)Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the condensed consolidated statements of operations.
(4)U.S. GAAP repurchase agreements interest expense on the condensed consolidated statements of operations includes the following components.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Interest expense on repurchase agreement borrowings 62,223  8,257  116,443  11,349 
Amortization of net deferred (gain) loss on de-designated interest rate swaps (3,201) (4,802) (7,695) (9,998)
Repurchase agreements interest expense 59,022  3,455  108,748  1,351 
(5)Earnings available for distribution per common share is equal to earnings available for distribution divided by the basic weighted average number of common shares outstanding.
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The table below shows the components of earnings available for distribution for the following periods.
Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2023 2022 2023 2022
Effective net interest income (1)
 72,642  49,864  142,173  90,230 
TBA dollar roll income —  11,855  697  25,256 
Equity in earnings (losses) of unconsolidated ventures —  (352) 2  (281)
(Increase) decrease in provision for credit losses (169) —  (169) — 
Total expenses (5,131) (7,138) (10,199) (14,436)
Subtotal 67,342  54,229  132,504  100,769 
Dividends to preferred stockholders (5,840) (8,100) (11,702) (16,494)
Earnings available for distribution 61,502  46,129  120,802  84,275 
(1)See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.
Earnings available for distribution increased during the three and six months ended June 30, 2023 compared to the same periods in 2022 primarily due to an increase in effective net interest income, which was partially offset by a reduction in our TBA notional amount and related TBA dollar roll activity.
Effective Interest Expense / Effective Cost of Funds / Effective Net Interest Income / Effective Interest Rate Margin
We calculate effective interest expense (and by calculation, effective cost of funds) as U.S. GAAP total interest expense adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and the amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense. We view our interest rate swaps as an economic hedge against increases in future market interest rates on our borrowings. We add back the net payments or receipts on our interest rate swap agreements to our total U.S. GAAP interest expense because we use interest rate swaps to add stability to interest expense. We exclude the amortization of net deferred gains (losses) on de-designated interest rate swaps from our calculation of effective interest expense because we do not consider the amortization a current component of our borrowing costs.
We calculate effective net interest income (and by calculation, effective interest rate margin) as U.S. GAAP net interest income adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense.
We believe the presentation of effective interest expense, effective cost of funds, effective net interest income and effective interest rate margin measures, when considered together with U.S. GAAP financial measures, provides information that is useful to investors in understanding our borrowing costs and operating performance.
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The following table reconciles total interest expense to effective interest expense and cost of funds to effective cost of funds for the following periods.
Three Months Ended June 30,
  2023 2022
$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds
Total interest expense 59,022  4.93  % 3,455  0.34  %
Add: Amortization of net deferred gain (loss) on de-designated interest rate swaps 3,201  0.27  % 4,802  0.47  %
Less: Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (63,437) (5.30) % (13,566) (1.34) %
Effective interest expense (1,214) (0.10) % (5,309) (0.53) %
Six Months Ended June 30,
  2023 2022
$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds
Total interest expense 108,748  4.56  % 1,351  0.05  %
Add: Amortization of net deferred gain (loss) on de-designated interest rate swaps 7,695  0.32  % 9,998  0.39  %
Less: Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (117,901) (4.95) % (14,850) (0.58) %
Effective interest expense (1,458) (0.07) % (3,501) (0.14) %

Our effective interest expense and effective cost of funds increased modestly in the three and six months ended June 30, 2023 compared to the same periods in 2022 as significant increases in U.S. GAAP interest expense, which were driven by increases in the Federal Funds target rate, were largely offset by increases in contractual net interest income on interest rate swaps.
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The following table reconciles net interest income to effective net interest income and net interest rate margin to effective interest rate margin for the following periods.
Three Months Ended June 30,
  2023 2022
$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income 12,406  0.48  % 41,100  3.48  %
Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps (3,201) (0.27) % (4,802) (0.47) %
Add: Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 63,437  5.30  % 13,566  1.34  %
Effective net interest income 72,642  5.51  % 49,864  4.35  %
Six Months Ended June 30,
  2023 2022
$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income 31,967  0.78  % 85,378  2.93  %
Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps (7,695) (0.32) % (9,998) (0.39) %
Add: Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 117,901  4.95  % 14,850  0.58  %
Effective net interest income 142,173  5.41  % 90,230  3.12  %

Our effective net interest income and effective interest rate margin increased in the three and six months ended June 30, 2023 compared to the same periods in 2022 primarily due to higher interest income resulting from our rotation into higher yielding Agency RMBS during 2022. Effective interest expense and effective cost of funds had a less significant impact on effective net interest income and effective interest rate margin as higher U.S. GAAP interest expense was largely offset by an increase in contractual net interest income on interest rate swaps.
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Economic Debt-to-Equity Ratio
The tables below show the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio as of June 30, 2023 and December 31, 2022. Our debt-to-equity ratio is calculated in accordance with U.S. GAAP and is the ratio of total debt to total stockholders' equity. As of June 30, 2023, approximately 95% of our equity is allocated to Agency RMBS.
We present an economic debt-to-equity ratio, a non-GAAP financial measure of leverage that considers the impact of the off-balance sheet financing of our investments in TBAs that are accounted for as derivative instruments under U.S. GAAP. We include our TBAs at implied cost basis in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities. Similarly, a contract for the forward sale of Agency RMBS has substantially the same effect as selling the underlying Agency RMBS and reducing our on-balance sheet funding commitments. We believe that presenting our economic debt-to-equity ratio, when considered together with our U.S. GAAP financial measure of debt-to-equity ratio, provides information that is useful to investors in understanding how management evaluates our at-risk leverage and gives investors a comparable statistic to those of other mortgage REITs who also invest in TBAs and present a similar non-GAAP measure of leverage.
As of June 30, 2023
$ in thousands Agency
RMBS
Credit Portfolio (1)
 Total
Mortgage-backed securities 5,462,474  44,986  5,507,460 
Cash and cash equivalents (2)
 209,036  —  209,036 
Restricted cash (3)
 124,669  —  124,669 
Other assets 24,298  766  25,064 
Total assets 5,820,477  45,752  5,866,229 
Repurchase agreements 4,959,388  —  4,959,388 
Derivative liabilities, at fair value (3)
 2,635  —  2,635 
Other liabilities 61,484  1,838  63,322 
Total liabilities 5,023,507  1,838  5,025,345 
Total stockholders' equity (allocated) 796,970  43,914  840,884 
Debt-to-equity ratio (4)
 6.2  —  5.9 
Economic debt-to-equity ratio (5)
 6.2  —  5.9 
(1)Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.
(2)Cash and cash equivalents is allocated based on our financing strategy for each asset class.
(3)Restricted cash and derivative assets and liabilities are allocated based on our hedging strategy for each asset class.
(4)Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.
(5)Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders' equity. We did not have any TBAs outstanding as of June 30, 2023.

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As of December 31, 2022
$ in thousands Agency
RMBS
Credit Portfolio (1)
 Total
Mortgage-backed securities 4,746,693  45,200  4,791,893 
Cash and cash equivalents (2)
 175,535  —  175,535 
Restricted cash (3)
 103,246  —  103,246 
Derivative assets, at fair value (3)
 662  —  662 
Other assets 25,252  807  26,059 
Total assets 5,051,388  46,007  5,097,395 
Repurchase agreements 4,234,823  —  4,234,823 
Derivative liabilities, at fair value (3)
 2,079  —  2,079 
Other liabilities 53,980  2,438  56,418 
Total liabilities 4,290,882  2,438  4,293,320 
Total stockholders' equity (allocated) 760,506  43,569  804,075 
Debt-to-equity ratio (4)
 5.6  —  5.3 
Economic debt-to-equity ratio (5)
 5.6  —  5.3 
(1)Investments in non-Agency CMBS, non-Agency RMBS and unconsolidated joint ventures are included in credit portfolio.
(2)Cash and cash equivalents is allocated based on our financing strategy for each asset class.
(3)Restricted cash and derivative assets and liabilities are allocated based on our hedging strategy for each asset class.
(4)Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.
(5)Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis ($1.4 million as of December 31, 2022) to total stockholders' equity.

Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and fund other general business needs. Our primary sources of funds for liquidity consist of the net proceeds from our common and preferred equity offerings, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.
We currently believe that we have sufficient liquidity and capital resources available for the acquisition of additional investments, repayments on borrowings, margin requirements and the payment of cash dividends as required for continued qualification as a REIT. We generally maintain liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital. Because the level of these borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our consolidated balance sheets is significantly less important than our potential liquidity available under borrowing arrangements or through the sale of liquid investments. However, there can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls.
We held cash, cash equivalents and restricted cash of $333.7 million as of June 30, 2023 (June 30, 2022: $330.8 million). Our cash, cash equivalents and restricted cash change due to normal fluctuations in cash balances related to the timing of principal and interest payments, repayments of debt, and asset purchases and sales. Our operating activities provided net cash of $153.7 million for the six months ended June 30, 2023 (June 30, 2022: $80.8 million).
Our investing activities used net cash of $830.0 million in the six months ended June 30, 2023 compared to net cash provided by investing activities of $3.5 billion in the six months ended June 30, 2022. We used cash of $2.4 billion to purchase MBS during the six months ended June 30, 2023 (June 30, 2022: $14.4 billion to purchase MBS and $502.3 million to purchase U.S. Treasury securities). We used cash of $65.0 million to settle derivative contracts in the six months ended June 30, 2023 (June 30, 2022: received cash of $424.7 million). Our primary source of cash from investing activities for the six months ended June 30, 2023 was proceeds from sales of MBS of $1.5 billion (June 30, 2022: $17.3 billion from the sales of MBS and $468.1 million from the sales of U.S. Treasury securities). We also generated $144.5 million from principal payments of MBS during the six months ended June 30, 2023 (June 30, 2022: $264.8 million).
Our financing activities provided net cash of $731.2 million for the six months ended June 30, 2023 (June 30, 2022: net cash used by financing activities of $3.8 billion). During the six months ended June 30, 2023, we received cash for net proceeds on our repurchase agreements of $724.6 million (June 30, 2022: net cash used of $3.7 billion). We also used cash of $53.5 million for the six months ended June 30, 2023 to pay dividends (June 30, 2022: $75.9 million).
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Proceeds from issuance of common stock provided $66.8 million for the six months ended June 30, 2023.
As of June 30, 2023, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.6% for Agency RMBS. The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS. Declines in the value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements. An event of default or termination event may give our counterparties the option to terminate all repurchase transactions outstanding with us and require any amount due from us to the counterparties to be payable immediately.
Effects of Margin Requirements, Leverage and Credit Spreads
Our securities have values that fluctuate according to market conditions and the market value of our securities will decrease as prevailing interest rates or credit spreads increase. When the value of the securities pledged to secure a repurchase loan decreases to the point where the positive difference between the collateral value and the loan amount is less than the haircut, our lenders may issue a “margin call”, which means that the lender will require us to pay cash or pledge additional collateral. Under our repurchase facilities, our lenders have full discretion to determine the value of the securities we pledge to them. Most of our lenders will value securities based on recent trades in the market. Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly.
We experience margin calls and increased collateral requirements in the ordinary course of our business. In seeking to effectively manage the margin requirements established by our lenders, we maintain a position of cash and unpledged securities. We refer to this position as our liquidity. The level of liquidity we have available to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our securities. If interest rates increase as a result of a yield curve shift or for another reason or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will seek to use our liquidity to meet the margin calls. There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls or increased collateral requirements. If our haircuts increase, our liquidity will proportionately decrease. In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness.
We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls and increased collateral requirements but that also allows us to be substantially invested in securities. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which would force us to liquidate assets into unfavorable market conditions and harm our results of operations and financial condition.
We are subject to financial covenants in connection with our lending, derivatives and other agreements we enter into in the normal course of our business. We intend to operate in a manner which complies with all of our financial covenants. Our lending and derivative agreements provide that we may be declared in default of our obligations if our leverage ratio exceeds certain thresholds and we fail to maintain stockholders’ equity or market value above certain thresholds over specified time periods.
Forward-Looking Statements Regarding Liquidity
As of June 30, 2023, we held $5.2 billion of Agency securities that are financed by repurchase agreements. We also had approximately $283.3 million of unencumbered investments and unrestricted cash of $209.0 million as of June 30, 2023. As of June 30, 2023, our known contractual obligations primarily consisted of $5.0 billion of repurchase agreement borrowings with a weighted average remaining maturity of 49 days. We generally intend to refinance the majority of our repurchase agreement borrowings at market rates upon maturity. Repurchase agreement borrowings that are not refinanced upon maturity are typically repaid through the use of cash on hand or proceeds from sales of securities. We are also committed to fund $2.9 million in additional capital to our unconsolidated joint ventures to cover future expenses should they occur.
Based upon our current portfolio and existing borrowing arrangements, we believe that cash flow from operations and available borrowing capacity will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our required distributions to stockholders and fund other general corporate expenses.
Our ability to meet our long-term (greater than one year) liquidity and capital resource requirements will be subject to obtaining additional debt financing. We may increase our capital resources by obtaining long-term credit facilities or through public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock, senior or subordinated notes and convertible notes. Such financing will depend on market conditions for capital raises and our ability to invest such offering proceeds. If we are unable to renew, replace or expand our sources of financing on substantially similar terms, it may have an adverse effect on our business and results of operations.
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Exposure to Financial Counterparties
We finance a substantial portion of our investment portfolio through repurchase agreements. Under these agreements, we pledge assets from our investment portfolio as collateral. Additionally, certain counterparties may require us to provide cash collateral in the event the market value of the assets declines to maintain a contractual repurchase agreement collateral ratio. If a counterparty were to default on its obligations, we would be exposed to potential losses to the extent the fair value of collateral pledged by us to the counterparty including any accrued interest receivable on such collateral exceeded the amount loaned to us by the counterparty plus interest due to the counterparty.
As of June 30, 2023, no counterparties held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $42.0 million, or 5% of our stockholders' equity. The following table summarizes our exposure to counterparties by geographic concentration as of June 30, 2023. The information is based on the geographic headquarters of the counterparty or counterparty's parent company. However, our repurchase agreements are generally denominated in U.S. dollars.
$ in thousands Number of Counterparties Repurchase Agreement Financing Exposure
North America 12  2,527,454  128,845 
Europe (excluding United Kingdom) 3  638,824  28,838 
Asia 3  1,226,112  66,307 
United Kingdom 1  566,998  22,743 
Total 19  4,959,388  246,733 
Dividends
To maintain our qualification as a REIT, U.S. federal income tax law generally requires that we distribute at least 90% of our REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains. We must pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our REIT taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our repurchase agreements and other debt payable. If our cash available for distribution is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
As discussed above, our distribution requirements are based on REIT taxable income rather than U.S. GAAP net income. The primary differences between our REIT taxable income and U.S. GAAP net income are: (i) unrealized gains and losses on investments that we have elected the fair value option for that are included in current U.S. GAAP income but are excluded from REIT taxable income until realized or settled; (ii) gains and losses on derivative instruments that are included in current U.S. GAAP net income but are excluded from REIT taxable income until realized; and (iii) temporary differences related to amortization of premiums and discounts on investments. For additional information regarding the characteristics of our dividends, refer to Note 12 – "Stockholders' Equity" of our annual report on Form 10-K for the year ended December 31, 2022.
Unrelated Business Taxable Income
We have not engaged in transactions that would result in a portion of our income being treated as unrelated business taxable income.
Other Matters
We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended June 30, 2023, and that our proposed method of operation will permit us to satisfy the asset tests, gross income tests, and distribution and stock ownership requirements for our taxable year that will end on December 31, 2023.
At all times, we intend to conduct our business so that neither we nor our Operating Partnership nor the subsidiaries of our Operating Partnership are required to register as an investment company under the 1940 Act. If we were required to register as an investment company, then our use of leverage would be substantially reduced.
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Because we are a holding company that conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test. This requirement limits the types of businesses in which we are permitted to engage in through our subsidiaries. In addition, we believe neither we nor the Operating Partnership are considered an investment company under Section 3(a)(1)(A) of the 1940 Act because they do not engage primarily or hold themselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through the Operating Partnership’s wholly-owned or majority-owned subsidiaries, we and the Operating Partnership are primarily engaged in the non-investment company businesses of these subsidiaries. IAS Asset I LLC and certain of the Operating Partnership’s other subsidiaries that we may form in the future rely upon the exclusion from the definition of "investment company" under the 1940 Act provided by Section 3(c)(5)(C) of the 1940 Act, which is available for entities "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exclusion generally requires that at least 55% of each subsidiary’s portfolio be comprised of qualifying assets and at least 80% be comprised of qualifying assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets). We calculate that as of June 30, 2023, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary components of our market risk are related to interest rate, principal prepayment and market value. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.
For additional discussion of market risk, see Part I. Item 1 - Risk Factors of our annual report on Form 10-K for the year ended December 31, 2022.
Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including governmental, monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. We are subject to interest rate risk in connection with our investments and our repurchase agreements. Our repurchase agreements are typically short-term in nature and are periodically refinanced at current market rates. We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agreements.
Interest Rate Effect on Net Interest Income
Our operating results depend in large part upon differences between the yields earned on our investments and our cost of borrowing and interest rate hedging activities. During periods of rising interest rates, the borrowing costs associated with our investments tend to increase while the income earned on our fixed interest rate investments may remain substantially unchanged. This increase in borrowing costs results in the narrowing of the net interest spread between the related assets and borrowings and may even result in losses. Further, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results. Such delinquencies or defaults could also have an adverse effect on the spread between interest-earning assets and interest-bearing liabilities.
Hedging techniques are partly based on assumed levels of prepayments of our RMBS. If prepayments are slower or faster than assumed, the life of the RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.
Interest Rate Effects on Fair Value
Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire. We face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments.
We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration values for the same securities.
The impact of changing interest rates on fair value can change significantly when interest rates change materially. Therefore, the volatility in the fair value of our assets could increase significantly in the event interest rates change materially. In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, changes in actual interest rates may have a material adverse effect on us.
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Spread Risk
We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads. We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives. The yield on our investments changes over time due to the level of risk free interest rates, the creditworthiness of the security, and the price of the perceived risk. The change in the market yield of our interest rate hedges also changes primarily with the level of risk free interest rates. We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and seeking to maintain adequate liquidity. Changes in spreads impact our book value and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value.
Elevated inflation, monetary policy tightening by the FOMC and concerns surrounding the health of the regional banking system have impacted and may continue to impact credit spreads.
Prepayment Risk
As we receive prepayments of principal on our investments, premiums or discounts on these investments are amortized against interest income. In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments. Conversely, discounts on such investments are accreted into interest income. In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments.
Increased inflation, elevated interest rate volatility and other factors have made it more difficult to predict prepayment levels for the securities in our portfolio. As a result, it is possible that realized prepayment behavior will be materially different from our expectations.
Extension Risk
We compute the projected weighted average life of our investments based upon assumptions regarding the rate at which the borrowers will prepay the underlying mortgages. In general, when a fixed-rate or hybrid adjustable-rate security is acquired with borrowings, we may, but are not required to, enter into an interest rate swap agreement or other hedging instrument that effectively fixes our borrowing costs for a period close to the anticipated average life of the fixed-rate portion of the related assets. This strategy is designed to protect us from rising interest rates, because the borrowing costs are fixed for the duration of the fixed-rate portion of the related target asset.
However, if prepayment rates decrease in a rising interest rate environment, then the life of the fixed-rate portion of the related assets could extend beyond the term of the swap agreement or other hedging instrument. This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument, while the income earned on the hybrid adjustable-rate assets would remain fixed. This situation may also cause the market value of our hybrid adjustable-rate assets to decline, with little or no offsetting gain from the related hedging transactions. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.
Market Risk
Market Value Risk
Our available-for-sale securities are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income under ASC Topic 320. The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a falling interest rate environment, the estimated fair value of these securities would be expected to increase.
The COVID-19 pandemic, unprecedented fiscal and monetary policy responses to the COVID-19 pandemic, and the ongoing normalization of such policy responses caused unprecedented volatility and illiquidity in fixed income markets. The amount of financing we receive under our repurchase agreements is directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing. When these or similar market conditions are present, margin call risk is elevated and our operating results and financial condition may be materially impacted.
The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, including net interest paid or received under interest rate swaps, as of June 30, 2023 and December 31, 2022, assuming a static portfolio and constant financing and credit spreads. When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations. The analysis presented utilized assumptions, models and estimates of our Manager based on our Manager’s judgment and experience.
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As of June 30, 2023 As of December 31, 2022
Change in Interest Rates Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value
+1.00% 0.05  % (1.30) % (2.97) % (1.15) %
+0.50% 0.02  % (0.56) % (1.54) % (0.48) %
-0.50% (0.15) % 0.31  % 1.56  % 0.22  %
-1.00% (0.46) % 0.30  % 2.90  % 0.13  %
Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The interest rate scenarios assume interest rates as of June 30, 2023 and December 31, 2022. Furthermore, while the analysis reflects the estimated impact of interest rate increases and decreases on a static portfolio, we actively manage the size and composition of our investment and swap portfolios, which can result in material changes to our interest rate risk profile. When applicable, our scenario analysis assumes a floor of 0% for U.S. Treasury yields and, to be consistent, we also apply a floor of 0% for all related funding costs.
The information set forth in the interest rate sensitivity table above and all related disclosures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.
Real Estate Risk
Residential and commercial property values are subject to volatility and may be adversely affected by a number of factors, including, but not limited to: national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as the supply of housing stock or other property sectors); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.
Credit Risk
We retain the risk of potential credit losses on all of our residential and commercial mortgage investments. We seek to manage this risk through our pre-acquisition due diligence process. In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends. We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields. These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations. We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and credit enhancement levels relative to collateral performance projections. This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.
Given deteriorating fundamentals and tightening lending conditions, borrowers may experience difficulties meeting their obligations and refinancing loans upon scheduled maturities. Loans may experience increasing delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities. We also expect credit rating agencies to continue to reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.
Risk Management
To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure to protect our investment portfolio against the effects of major interest rate changes. We generally seek to manage this risk by:
•monitoring and adjusting, if necessary, the reset index and interest rate related to our target assets and our financings;
•attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;
•exploring options to obtain financing arrangements that are not marked to market;
•using hedging instruments, primarily interest rate swap agreements but also financial futures, options, interest rate cap agreements, floors and forward sales to adjust the interest rate sensitivity of our target assets and our borrowings; and
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•actively managing, on an aggregate basis, the interest rate indices, interest rate adjustment periods, and gross reset margins of our target assets and the interest rate indices and adjustment periods of our financings.
ITEM 4.     CONTROLS AND PROCEDURES.

Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.
We have evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based upon our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Changes in Internal Control over Financial Reporting    
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION
 
ITEM 1.     LEGAL PROCEEDINGS.
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2023, we were not involved in any such legal proceedings.
ITEM 1A.     RISK FACTORS.
There were no material changes during the period covered by this Quarterly Report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 21, 2023. Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse effect on our business, financial condition and results of operations.
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following tables sets forth information with respect to our repurchases of Series B Preferred Stock during the three months ended June 30, 2023.
Month Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs (1)
Maximum Number at end of period of Shares
that May Yet Be Purchased
Under the Plans
or Programs (1)
April 1, 2023 to April 30, 2023 —  —  —  1,337,634 
May 1, 2023 to May 31, 2023 18,779  19.72  18,779  1,318,855 
June 1, 2023 to June 30, 2023 19,009  20.34  19,009  1,299,846 
  37,788  20.03  37,788 

The following tables sets forth information with respect to our repurchases of Series C Preferred Stock during the three months ended June 30, 2023.
Month Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares
Purchased as Part of
Publicly Announced Plans or Programs (1)
Maximum Number at end of period of Shares
that May Yet Be Purchased
Under the Plans
or Programs (1)
April 1, 2023 to April 30, 2023 —  —  —  1,316,470 
May 1, 2023 to May 31, 2023 15,634  19.15  15,634  1,300,836 
June 1, 2023 to June 30, 2023 27,062  19.41  27,062  1,273,774 
  42,696  19.31  42,696 
(1)In May 2022, our board of directors approved a share repurchase program under which we may purchase up to 3,000,000 shares of our Series B Preferred Stock and 5,000,000 shares of our Series C Preferred Stock with no stated expiration date. The shares may be repurchased from time to time through privately negotiated transactions or open market transactions, including under a trading plan in accordance with Rules 10b5-1 and 10b-18 under Exchange Act or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules.
ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4.     MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5.     OTHER INFORMATION.
None.

ITEM 6.     EXHIBITS.
A list of exhibits to this Form 10-Q is set forth on the Exhibit Index and is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
INVESCO MORTGAGE CAPITAL INC.
August 3, 2023 By: /s/ John M. Anzalone
John M. Anzalone
Chief Executive Officer
August 3, 2023 By: /s/ R. Lee Phegley, Jr.
R. Lee Phegley, Jr.
Chief Financial Officer

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EXHIBIT INDEX
Item 6.        Exhibits
 
Exhibit
No.
    Description
3.1    
3.2    
3.3 
3.4 
3.5 
3.6 
3.7 
3.8 
3.9 
3.10    
31.1    
31.2    
32.1    
32.2    
101    
101.INS XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
101.SCH XBRL Taxonomy Extension Schema Document
 
101.CAL XBRL Taxonomy Calculation Linkbase Document
 
101.LAB XBRL Taxonomy Label Linkbase Document
 
101.PRE XBRL Taxonomy Presentation Linkbase Document
 
101.DEF XBRL Taxonomy Definition Linkbase Document
104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
57
EX-31.1 2 ivr20230630ex311.htm EX-31.1 Document

EXHIBIT 31.1
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, John M. Anzalone, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Invesco Mortgage Capital Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 3, 2023
 
/s/ John M. Anzalone
John M. Anzalone
Chief Executive Officer


EX-31.2 3 ivr20230630ex312.htm EX-31.2 Document

EXHIBIT 31.2
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, R. Lee Phegley, Jr., certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Invesco Mortgage Capital Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 3, 2023
 
/s/ R. Lee Phegley, Jr.
R. Lee Phegley, Jr.
Chief Financial Officer


EX-32.1 4 ivr20230630ex321.htm EX-32.1 Document

EXHIBIT 32.1
CERTIFICATION OF JOHN M. ANZALONE
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Invesco Mortgage Capital Inc.’s (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2023 (the “Report”), I, John M. Anzalone, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 3, 2023
 
/s/ John M. Anzalone
John M. Anzalone
Chief Executive Officer


EX-32.2 5 ivr20230630ex322.htm EX-32.2 Document

EXHIBIT 32.2
CERTIFICATION OF R. LEE PHEGLEY, JR.
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with Invesco Mortgage Capital Inc.’s (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2023 (the “Report”), I, R. Lee Phegley, Jr., do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 3, 2023
 
/s/ R. Lee Phegley, Jr.
R. Lee Phegley, Jr.
Chief Financial Officer