# DYNEX CAPITAL INC (DX) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from DYNEX CAPITAL INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/826675/000082667525000021/dx-20241231.htm
Accession: 0000826675-25-000021
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/DX/
All MD&A years: /company/DX/mda/
Previous year: /company/DX/mda/fy2023/ (FY 2023)
Next year: /company/DX/mda/fy2025/ (FY 2025)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our financial statements and the related notes included in Part II, Item 8, "Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those disclosed in Part I, Item 1A, “Risk Factors” elsewhere in this Annual Report on Form 10-K and in other documents filed with the SEC and otherwise publicly disclosed. Please refer to “Forward-Looking Statements” contained within this Item 7 for additional information. This discussion also contains non-GAAP financial measures, which are discussed in the section “Non-GAAP Financial Measures.”

For a complete description of our business, including our operating policies, investment philosophy and strategy, financing and hedging strategies, and other important information, please refer to Part I, Item 1 of this Annual Report on Form 10-K.

EXECUTIVE OVERVIEW

In late 2023, the 10-year U.S. Treasury approached 5% based on inflation fears, but into the end of 2023 and early 2024, there was optimism that many rate cuts were on the near term horizon which spurred longer term rates to fall in the early part of 2024. As the year progressed and more economic data was available, it became clear that growth was still moderate and the early outlook for rate cuts was too aggressive. Beginning in September, the Federal Reserve began to cut interest rates, reversing the direction of short-term rates for the first time since March of 2022. The Federal Funds rate cut in September was followed by two more rate cuts before year end. This shift in policy and the outlook for 2025 changed the shape of the yield curve, and by the end of 2024, the yield curve was no longer inverted with short-term rates below longer-term rates. This change in the shape of the yield curve allows levered mortgage investors, like Dynex, to earn a positive carry by investing in longer term bonds with a higher yield than its repurchase based financing cost which is generally tied to shorter-term rates. Mortgage spreads to Treasuries remained elevated for most of 2024 which provided for solid opportunities to buy assets that will generate good returns over the long term.

Market Data

The charts below show the range of U.S. Treasury rates for the past year and information regarding market spreads as of and for the periods indicated:

27

[[GREPCENT_TABLE]]
[["","","Market Spreads as of:","","Change in Spreads YTD"],["Investment Type: (1)","","December 31, 2024","","September 30, 2024","","June 30, 2024","","March 31, 2024","","December 31, 2023"],["Agency RMBS:"],["2.0% coupon","","89","","83","","86","","84","","76","","13"],["2.5% coupon","","93","","83","","87","","84","","78","","15"],["4.0% coupon","","69","","71","","78","","74","","74","","(5)"],["4.5% coupon","","68","","70","","73","","71","","73","","(5)"],["5.0% coupon","","69","","66","","67","","68","","69","","\u2014"],["5.5% coupon","","72","","64","","68","","65","","66","","6"],["6.0% coupon","","74","","54","","65","","62","","60","","14"],["Agency DUS (Agency CMBS)(2)","","96","","104","","95","","94","","105","","(9)"],["Freddie K AAA IO (Agency CMBS IO)(2)","","120","","135","","150","","165","","180","","(60)"],["AAA CMBS IO (Non-Agency CMBS IO)(2)","","119","","122","","135","","168","","225","","(106)"]]
[[/GREPCENT_TABLE]]

(1)Option adjusted spreads (“OAS”) are based on Company estimates using third-party models and market data. OAS shown for prior periods may differ from previous disclosures because the Company regularly updates the third-party model used.

(2)Data represents the spread to swap rate on newly issued securities and is sourced from J.P. Morgan.

Summary of Results

As a result of capital raising and a more favorable investing environment, we significantly grew our balance sheet during the year ended December 31, 2024. Our total assets increased over 28%, and our total shareholders’ equity increased over 36%. During the year, we added approximately $2.2 billion in higher coupon Agency RMBS at a lower cost of financing, which improved our net interest income to $5.9 million versus a loss of $(7.9) million in the prior year. As the yield curve un-inverted, we repositioned our hedges, changing the majority of our interest rate derivatives from U.S. Treasury futures to interest rate swaps, which contributed net periodic interest of $16.1 million to our earnings for the year ended December 31, 2024. Our investment portfolio declined in fair value because the increase in the 10-year U.S. Treasury rate as well as widening of credit spreads. However, gains from our hedging portfolio exceeded the losses in fair value of our investments by $130.5 million. Despite the growth in our balance sheet, we managed our operating expenses and lowered our expense ratio by approximately 70 basis points compared to the prior year.

28

The following table summarizes the changes in the Company's financial position during 2024:

[[GREPCENT_TABLE]]
[["($s in thousands except per share data)","Net Change in Fair Value","","Components of Comprehensive Income","","Common Book Value Rollforward","","Per Common Share"],["Balance as of December 31, 2023 (1)","","","","","$","759,235","","","$","13.31"],["Net interest income","","","$","5,877"],["G & A and other operating expenses","","","(36,498)"],["Preferred stock dividends","","","(7,694)"],["Changes in fair value:"],["MBS and loans","$","(157,845)"],["TBAs","(38,512)"],["U.S. Treasury futures","174,108"],["Interest rate swaps","152,781"],["Total net change in fair value","","","130,532"],["Comprehensive income to common shareholders","","","","","92,217"],["Capital transactions:"],["Net proceeds from stock issuance (2)","","","","","338,315"],["Common dividends declared","","","","","(116,331)"],["Balance as of December 31, 2024 (1)","","","","","$","1,073,436","","","$","12.70"]]
[[/GREPCENT_TABLE]]

(1)Amounts represent total shareholders' equity less the aggregate liquidation preference of the Company's preferred stock of $111.5 million, in thousands and on a per common share basis.

(2)Net proceeds from stock issuance include $6.3 million from amortization of share-based compensation, net of grants, and adjustments for payroll tax withholding on share-based compensation vesting during the year ended December 31, 2024.

Current Outlook

Inflation fears that drove U.S. Federal Reserve policy over the last three years are starting to subside, which allowed the Federal Open Market Committee to start cutting the U.S. Federal Funds rate in the second half of 2024. The shape of the yield curve and less restrictive monetary policy in 2025 provide an investment backdrop that is very different than the last two years, which were marked by rising short-term rates and a prolonged period of an inverted yield curve. Historically wide spreads provide us a good environment to invest into, and the swaps market further supports portfolio returns for levered mortgage investors like Dynex. With rapidly evolving geopolitical and macroeconomic factors, we are focused on regulatory changes and the potential range of impacts on monetary policy, yield curve, and generally supply and demand dynamics. We are also prepared for bouts of volatility and spread widening, which may cause temporary declines in the market value of our assets but should provide for compelling returns for our investors longer term. Inflation is still a focus and tax policy may cause changes to the inflation outlook. The financing environment is still liquid and supportive of ownership of high-quality liquid assets such as Agency MBS. We may continue to expand our capital base through the ATM program to deploy into an attractive market, achieve scale, and continue to attract higher price-to-book multiple on our common stock price.

29

FINANCIAL CONDITION

Investment Portfolio

Our investment portfolio (including TBAs) as of December 31, 2024, increased approximately 32% compared to December 31, 2023. The following charts compare the composition of our MBS portfolio (including TBAs) as of the dates indicated:

We purchased approximately $2.2 billion of higher coupon Agency RMBS during the year ended December 31, 2024, of which $335.1 million were pending settlement as of December 31, 2024. We also increased our TBA positions by a notional of $1.0 billion during the year ended December 31, 2024. The following tables compare our fixed-rate Agency RMBS investments, including TBA dollar roll positions, as of the dates indicated:

[[GREPCENT_TABLE]]
[["","","December 31, 2024"],["","","Par/Notional","","Amortized Cost/Implied Cost Basis (1)(3)","","Fair Value (2)(3)","","Weighted Average"],["Coupon","","","","","Loan Age(in months)(4)","","3 MonthCPR (4)(5)","","Estimated Duration (6)","","Market Yield (7)"],["30-year fixed-rate:","","($s in thousands)"],["2.0%","","$","655,356","","","$","666,107","","","$","516,541","","","51","","5.0","%","","6.49","","5.42","%"],["2.5%","","561,625","","","582,776","","","463,402","","","52","","4.3","%","","6.37","","5.33","%"],["4.0%","","324,615","","","325,091","","","299,774","","","45","","6.4","%","","5.92","","5.25","%"],["4.5%","","1,323,371","","","1,291,410","","","1,252,219","","","27","","7.4","%","","5.79","","5.33","%"],["5.0%","","2,356,262","","","2,315,518","","","2,284,613","","","18","","5.7","%","","5.19","","5.47","%"],["5.5%","","2,193,064","","","2,207,296","","","2,178,180","","","13","","5.3","%","","4.53","","5.61","%"],["6.0%","","303,470","","","307,211","","","307,509","","","13","","13.2","%","","3.60","","5.74","%"],["TBA 4.0%","","462,000","","","424,917","","","421,796","","","n/a","","n/a","","6.62","","5.20","%"],["TBA 4.5%","","383,000","","","361,610","","","359,837","","","n/a","","n/a","","5.95","","5.35","%"],["TBA 5.0%","","710,000","","","693,938","","","684,706","","","n/a","","n/a","","5.20","","5.51","%"],["TBA 5.5%","","864,000","","","860,609","","","852,053","","","n/a","","n/a","","4.21","","5.73","%"],["Total","","$","10,136,763","","","$","10,036,483","","","$","9,620,630","","","23","","6.1","%","","5.22","","","5.49","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["","","Par/Notional","","Amortized Cost/Implied Cost Basis (1)(3)","","Fair Value (2)(3)","","Weighted Average"],["Coupon","","","","","Loan Age(in months)(4)","","3 MonthCPR (4)(5)","","Estimated Duration (6)","","Market Yield (7)"],["30-year fixed-rate:","","($s in thousands)"],["2.0%","","$","708,528","","","$","720,611","","","$","586,361","","","39","","4.4","%","","6.81","","4.60","%"],["2.5%","","608,580","","","632,343","","","525,018","","","40","","4.5","%","","6.62","","4.59","%"],["4.0%","","354,382","","","354,965","","","339,212","","","34","","5.5","%","","5.65","","4.67","%"],["4.5%","","1,383,019","","","1,350,697","","","1,348,108","","","15","","5.0","%","","5.08","","4.88","%"],["5.0%","","2,070,473","","","2,035,088","","","2,057,309","","","9","","4.7","%","","4.24","","5.10","%"],["5.5%","","897,520","","","900,218","","","907,524","","","8","","5.0","%","","3.58","","5.29","%"],["TBA 4.0%","","262,000","","","240,641","","","248,040","","","n/a","","n/a","","5.89","","4.72","%"],["TBA 4.5%","","223,000","","","210,940","","","216,415","","","n/a","","n/a","","4.75","","4.92","%"],["TBA 5.0%","","518,000","","","490,466","","","512,982","","","n/a","","n/a","","3.98","","5.15","%"],["TBA 5.5%","","200,000","","","191,926","","","201,047","","","n/a","","n/a","","2.81","","5.36","%"],["TBA 6.0%","","200,000","","","193,369","","","203,219","","","n/a","","n/a","","2.15","","5.37","%"],["Total","","$","7,425,502","","","$","7,321,264","","","$","7,145,235","","","17","","4.8","%","","4.72","","","4.98","%"]]
[[/GREPCENT_TABLE]]

(1)Implied cost basis of TBAs represents the forward price to be paid for the underlying Agency MBS.

(2)Fair value of TBAs is the implied market value of the underlying Agency security as of the end of the period.

(3)TBAs are included on the consolidated balance sheet within “derivative assets/liabilities” at their net carrying value which is the difference between their implied market value and implied cost basis. Please refer to Note 5 of the Notes to the Consolidated Financial Statements for additional information.

(4)TBAs are excluded from this calculation as they do not have a defined weighted-average loan balance or age until mortgages have been assigned to the pool.

(5)Constant prepayment rate (“CPR”) represents the 3-month CPR of Agency RMBS held as of date indicated.

(6)Duration measures the sensitivity of a security's price to the change in interest rates and represents the percent change in price of a security for a 100-basis point increase in interest rates. We calculate duration using third-party financial models and empirical data. Different models and methodologies can produce different estimates of duration for the same securities.

(7)Represents the weighted average market yield projected using cash flows generated from the forward curve based on market prices as of the date indicated and assuming zero volatility.

Agency CMBS, Agency CMBS IO, and non-Agency CMBS IO comprise 2.1% of our MBS portfolio as of December 31, 2024 is comprised of Agency CMBS, Agency CMBS IO, and non-Agency CMBS IO. Our Agency CMBS and Agency CMBS IO are backed by loans collateralized by multifamily properties, which have performed well for the last decade versus other sectors of the commercial real estate market. Our Agency CMBS IO are Class X1 from Freddie Mac Series K deals from which interest continues to be advanced even in the event of an underlying default up until liquidation. According to Freddie Mac, 99.8% of the loans in K-deals are current as of September 2024. Our non-Agency CMBS IO were all originated prior to 2018 with a weighted average remaining life of less than 2 years. The underlying loans for the non-Agency CMBS IO securities are collateralized by a number of different property types including: 27% retail, 40% office, 4% multifamily, 10% hotel and 19% all other real estate categories. In the current macroeconomic environment, we are not actively purchasing CMBS or CMBS IO as current risk versus reward remains unattractive relative to Agency RMBS. Our non-Agency CMBS IO investments are nearing maturity and have very little amortized cost remaining; any changes in actual payments may result in large swings in yield as shown below. Non-Agency CMBS IO do not comprise a material percentage of our portfolio and future income is not expected to have a material impact on our financial results.

The following table provides certain information regarding our CMBS and CMBS IO as of the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31, 2024"],["($s in thousands)","Amortized Cost","","Fair Value","","WAVG Life Remaining (1)","","WAVG Market Yield (2)"],["Agency CMBS","$","99,848","","","$","95,463","","","2.6","","4.76","%"],["Agency CMBS IO","109,335","","","103,606","","","5.7","","7.21","%"],["Non-Agency CMBS IO","8,256","","","10,780","","","1.3","","26.42","%"],["Total","$","217,439","","","$","209,849"],["","December 31, 2023"],["($s in thousands)","Amortized Cost","","Fair Value","","WAVG Life Remaining (1)","","WAVG Market Yield (2)"],["Agency CMBS","$","121,799","","","$","115,595","","","4.1","","4.74","%"],["Agency CMBS IO","140,824","","","133,302","","","5.9","","5.19","%"],["Non-Agency CMBS IO","26,490","","","26,416","","","1.1","","13.32","%"],["Total","$","289,113","","","$","275,313"],["(1) Represents the weighted average life remaining in years based on contractual cash flows as of the dates indicated."],["(2) Represents the weighted average market yield projected using cash flows generated off the forward curve based on market prices as of the dates indicated and assuming zero volatility."]]
[[/GREPCENT_TABLE]]

Repurchase Agreements

Our repurchase agreement borrowings increased to $6.6 billion as of December 31, 2024 from $5.4 billion as of December 31, 2023 as we used these funds to partially finance our purchases of Agency RMBS during the year. We have not experienced any difficulty in securing financing with any of our counterparties, and our repurchase agreement counterparties have not indicated any concerns regarding leverage or credit. Please refer to Note 4 of the Notes to the Consolidated Financial Statements contained within this Annual Report on Form 10-K as well as “Results of Operations” and “Liquidity and Capital Resources” contained within this Item 7 for additional information relating to our repurchase agreement borrowings.

Derivative Assets and Liabilities

During the year ended December 31, 2024, we shifted the majority of our interest rate hedges from U.S. Treasury futures to interest rate swaps. The table below discloses details on the Company's interest rate hedges held as of December 31, 2024, compared to hedging portfolio held as of December 31, 2023:

[[GREPCENT_TABLE]]
[["Notional Amount Long (Short)","","December 31, 2024","","December 31, 2023"],["($s in thousands)"],["30-year U.S. Treasury futures","","$","(516,500)","","","$","(700,000)"],["10-year U.S. Treasury futures","","(735,000)","","","(4,180,000)"],["4-5 year interest rate swaps (pay-fixed rate of 3.42%)","","(1,275,000)","","","\u2014"],["6-7 year interest rate swaps (pay-fixed rate of 3.61%)","","(3,085,000)","","","\u2014"],["9-10 year interest rate swaps (pay-fixed rate of 3.83%)","","(1,025,000)","","","\u2014"]]
[[/GREPCENT_TABLE]]

Please refer to Note 5 of the Notes to the Consolidated Financial Statements for details on our interest rate hedging instruments as well as “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Net Interest Expense

Net interest expense and net interest spread improved for the year ended December 31, 2024, compared to the year ended December 31, 2023. Though our average cost of financing remained higher than our effective yield for 2024, our net interest income turned positive as our purchases of higher-yielding assets increased our interest income relative to 2023, while the rate cuts implemented by the FOMC during the year helped to lower our interest expense. As market expectations of a rate reduction increased, we shortened our borrowing terms with our counterparties so we would be in a better position to rollover our borrowings as quickly as possible to take advantage of lower financing rates.

The following table presents information about our interest-earning assets and interest-bearing liabilities and their performance for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended"],["","December 31,"],["","2024","","2023"],["($s in thousands)","Interest Income/Expense","","Average Balance (1)(2)","","Effective Yield/Financing Cost (3)(4)","","Interest Income/Expense","","Average Balance (1)(2)","","Effective Yield/Financing Cost (3)(4)"],["Agency RMBS","$","289,781","","","$","6,477,575","","","4.47","%","","$","177,695","","","$","4,621,304","","","3.85","%"],["Agency CMBS","3,247","","","106,641","","","3.00","%","","3,713","","","124,157","","","2.96","%"],["CMBS IO (5)","11,029","","","140,353","","","7.86","%","","9,666","","","202,261","","","4.78","%"],["Non-Agency MBS and other investments","78","","","1,396","","","5.04","%","","128","","","2,377","","","5.28","%"],["MBS and loans","$","304,135","","","$","6,725,965","","","4.52","%","","$","191,202","","","$","4,950,099","","","3.86","%"],["Cash equivalents","15,399","","","","","","","16,315"],["Total interest income","$","319,534","","","","","","","$","207,517"],["Repurchase agreement financing","(313,657)","","","5,790,037","","","(5.33)","%","","(215,448)","","","4,034,561","","","(5.27)","%"],["Net interest income (expense)/net interest spread","$","5,877","","","","","(0.81)","%","","$","(7,931)","","","","","(1.41)","%"],["Net periodic interest","16,105","","","","","0.28","%","","\u2014","","","","","\u2014","%"],["Economic net interest income (expense)/spread (6)","$","21,982","","","","","(0.53)","%","","$","(7,931)","","","","","(1.41)","%"]]
[[/GREPCENT_TABLE]]

(1)Average balance for assets is calculated as a simple average of the daily amortized cost and excludes securities pending settlement if applicable.

(2)Average balance for liabilities is calculated as a simple average of the daily borrowings outstanding during the period.

(3)Effective yield is calculated by dividing interest income by the average balance of asset type outstanding during the reporting period. Unscheduled adjustments to premium/discount amortization/accretion, such as for prepayment compensation, are not annualized in this calculation.

(4)Financing cost is calculated by dividing annualized interest expense by the total average balance of borrowings outstanding during the period with an assumption of 360 days in a year.

(5)Includes Agency and non-Agency issued securities.

(6)Represents a non-GAAP measure. Please refer to the section below “Non-GAAP Financial Measures” for a reconciliation of economic net interest income/spread to GAAP measures.

Gains (Losses) on Investments and Derivative Instruments

The 10-year U.S. Treasury rate rose as high as 4.71%, ending 2024 at 4.57%, an increase of approximately 69 basis points since the year began. Throughout the year, we frequently adjusted the volume and type of derivative instruments used to hedge the volatile interest rate environment. As a result, net gains from our interest rate hedging portfolio exceeded the net loss in fair value of our investments by $130.5 million, which also declined in fair value due to wider credit spreads as of December 31, 2024 versus December 31, 2023.

During the year ended December 31, 2023, the 10-year U.S. Treasury rate ranged from a low of 3.31% in April 2023 to a high of 4.99% in October 2023, yet ended the year where it started at 3.88%. Credit spreads, which were wider for most of 2023, also tightened during the fourth quarter of 2023. We purchased $3.6 billion of Agency RMBS throughout the year when credit spreads were wider relative to December 31, 2023. As a result, the fair value of our investment portfolio, including TBAs, increased a net $68.4 million for the year ended December 31, 2023. These gains were partially offset by net losses on our interest rate hedges of $(10.8) million for the year ended December 31, 2023.

The following tables provide details on realized and unrealized gains and losses within our investment and interest rate hedging portfolios for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 31, 2024"],["($s in thousands)","","Realized Gain (Loss) Recognized in Net Income","","Unrealized Gain (Loss) Recognized in Net Income","","Unrealized Gain (Loss) Recognized in OCI","","Total Change in Fair Value"],["Investment portfolio:"],["Agency RMBS","","$","\u2014","","","$","(144,139)","","","$","(18,642)","","","$","(162,781)"],["Agency CMBS","","(1,506)","","","1,073","","","747","","","314"],["CMBS IO","","\u2014","","","531","","","3,861","","","4,392"],["Other non-Agency and loans","","\u2014","","","183","","","47","","","230"],["Subtotal","","(1,506)","","","(142,352)","","","(13,987)","","","(157,845)"],["TBA securities (1)","","38,530","","","(77,042)","","","\u2014","","","(38,512)"],["Net gain (loss) on investments","","$","37,024","","","$","(219,394)","","","$","(13,987)","","","$","(196,357)"],["Interest rate hedging portfolio:"],["U.S. Treasury futures","","$","(46,955)","","","$","221,063","","","$","\u2014","","","$","174,108"],["Interest rate swaps (2)","","16,105","","","136,676","","","\u2014","","","152,781"],["Net (loss) gain on interest rate hedges","","$","(30,850)","","","$","357,739","","","$","\u2014","","","$","326,889"],["Total net gain (loss)","","$","6,174","","","$","138,345","","","$","(13,987)","","","$","130,532"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 31, 2023"],["($s in thousands)","","Realized Gain (Loss) Recognized in Net Income","","Unrealized Gain (Loss) Recognized in Net Income","","Unrealized Gain (Loss) Recognized in OCI","","Total Change in Fair Value"],["Investment portfolio:"],["Agency RMBS","","$","(74,916)","","","$","141,263","","","$","16,343","","","$","82,690"],["Agency CMBS","","\u2014","","","96","","","1,342","","","1,438"],["CMBS IO","","\u2014","","","1,111","","","5,148","","","6,259"],["Other non-Agency and loans","","\u2014","","","31","","","10","","","41"],["Subtotal","","(74,916)","","","142,501","","","22,843","","","90,428"],["TBA securities (1)","","(97,777)","","","75,713","","","\u2014","","","(22,064)"],["Net (loss) gain on investments","","$","(172,693)","","","$","218,214","","","$","22,843","","","$","68,364"],["Interest rate hedging portfolio:"],["U.S. Treasury futures","","$","234,015","","","$","(246,445)","","","$","\u2014","","","$","(12,430)"],["Put options on U.S. Treasury futures","","3,645","","","(2,056)","","","\u2014","","","1,589"],["Net gain (loss) on interest rate hedges","","$","237,660","","","$","(248,501)","","","$","\u2014","","","$","(10,841)"],["Total net gain (loss)","","$","64,967","","","$","(30,287)","","","$","22,843","","","$","57,523"]]
[[/GREPCENT_TABLE]]

1)Realized and unrealized gains (losses) on TBA securities are recorded within “gain (loss) on derivative instruments, net” on the Company’s consolidated statements of comprehensive income.

2)Realized gain (loss) for interest rate swaps consists of net periodic interest benefit of $16.1 million for the year ended December 31, 2024. We did not have any interest rate swap agreements mature or terminate during the year ended December 31, 2024.

Operating Expenses

Operating expenses for the year ended December 31, 2024, increased $3.6 million compared to the year ended December 31, 2023, primarily due to accelerated recognition of share-based compensation expense for certain stock incentive awards granted in March 2024 to a retirement eligible employee. In addition, our salary and bonus expenses increased by $1.0 million due to an increase in average headcount as well as salary increases and other performance-based incentives.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Please refer to “Results of Operations” within Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, which is incorporated herein by reference.

Non-GAAP Financial Measures

In evaluating the Company’s financial and operating performance, management considers book value per common share, total economic return (loss) to common shareholders, and other operating results presented in accordance with GAAP as well as certain non-GAAP financial measures, which include earnings available for distribution (“EAD”) to common shareholders (including per common share) and economic net interest income and the related metric economic net interest spread. Management believes these non-GAAP financial measures may be useful to investors because they are viewed by management as a measure of the investment portfolio’s return based on the effective yield of its investments, net of financing costs and, with respect to EAD, net of other normal recurring operating income/expenses.

Drop income generated by TBA dollar roll positions, which is included in "gain (loss) on derivatives instruments, net" on the Company's consolidated statements of comprehensive income, is included in EAD because management views drop income as the economic equivalent of net interest income (interest income less implied financing cost) on the underlying Agency security from trade date to settlement date. However, drop income/loss does not represent the total realized gain/loss from the Company’s investments in TBA securities.

Management also includes net periodic interest from its interest rate swaps, which is included in "gain (loss) on derivatives instruments, net," in EAD and economic net interest income because interest rate swaps are used by the Company to economically hedge the impact of changing interest rates on its borrowing costs from repurchase agreements, and including net periodic interest from interest rate swaps is a helpful indicator of the Company’s total financing cost in addition to GAAP interest expense.

Non-GAAP financial measures are not a substitute for GAAP earnings and may not be comparable to similarly titled measures of other REITs because they may not be calculated in the same manner. Furthermore, though EAD is one of several factors our management considers in determining the appropriate level of distributions to common shareholders, it should not be utilized in isolation, and it is not an accurate indication of the Company’s REIT taxable income, its distribution requirements in accordance with the Tax Code or total economic return.

Reconciliations of each non-GAAP measure to certain GAAP financial measures are provided below.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["Reconciliations of GAAP to Non-GAAP Financial Measures:","","December 31, 2024","","December 31, 2023"],["($s in thousands except per share data)"],["Comprehensive income to common shareholders (GAAP)","","$","92,217","","","$","9,020"],["Less:"],["Change in fair value of investments (1)","","157,845","","","(90,429)"],["Change in fair value of derivative instruments, net (2)","","(274,966)","","","28,808"],["EAD to common shareholders (non-GAAP)","","$","(24,904)","","","$","(52,601)"],["Average common shares outstanding","","70,766,410","","","54,809,462"],["EAD per common share (non-GAAP)","","$","(0.35)","","","$","(0.96)"],["Net interest income (loss) (GAAP)","","$","5,877","","","$","(7,931)"],["Net periodic interest from interest rate swaps","","16,105","","","\u2014"],["Economic net interest income (expense) (non-GAAP)","","21,982","","","(7,931)"],["TBA drop loss (3)","","(2,694)","","","(4,097)"],["Total operating expenses","","(36,498)","","","(32,879)"],["Preferred stock dividends","","(7,694)","","","(7,694)"],["EAD to common shareholders (non-GAAP)","","$","(24,904)","","","$","(52,601)"],["Net interest spread (GAAP)","","(0.81)","%","","(1.41)","%"],["Net periodic interest as a percentage of average repurchase borrowings","","0.28","%","","\u2014","%"],["Economic net interest spread (non-GAAP)","","(0.53)","%","","(1.41)","%"]]
[[/GREPCENT_TABLE]]

(1)Amount includes realized and unrealized gains and losses due to changes in the fair value of the Company’s MBS.

(2)The following table reconciles “change in fair value of derivative instruments, net” to the “gain (loss) on derivative instruments, net” shown on the consolidated statements of comprehensive income.

[[GREPCENT_TABLE]]
[["","","Year Ended"],["($s in thousands)","","December 31, 2024","","December 31, 2023"],["Gain (loss) on derivative instruments, net","","$","288,377","","","$","(32,905)"],["Less:"],["TBA drop loss","","2,694","","","4,097"],["Net periodic interest from interest rate swaps","","(16,105)","","","\u2014"],["Change in fair value of derivative instruments, net","","$","274,966","","","$","(28,808)"]]
[[/GREPCENT_TABLE]]

(3)TBA drop income (loss) is calculated by multiplying the notional amount of the TBA dollar roll positions by the difference in price between two TBA securities with the same terms but different settlement dates.

30

LIQUIDITY AND CAPITAL RESOURCES

 Our primary sources of liquidity include borrowings under repurchase arrangements and monthly principal and interest payments we receive on our investments. Additional sources may include proceeds from the sale of investments, equity offerings, and net payments received from counterparties for derivative instruments. We use our liquidity to purchase investments, to pay amounts due on our repurchase agreement borrowings, and to pay our operating expenses and dividends on our common and preferred stock. We also use our liquidity to meet margin requirements for our repurchase agreements and derivative transactions, including TBA contracts, under the terms of the related agreements. We may also periodically use liquidity to repurchase shares of the Company’s stock.

During the year ended December 31, 2024, we issued 10,500,000 shares of common stock through a public offering, resulting in proceeds of $124.5 million, net of issuance costs. We also issued 16,756,835 shares of common stock through our ATM program, resulting in proceeds of $207.6 million, net of broker commissions and fees. We deployed these proceeds into purchases of higher coupon Agency RMBS and to cover increased initial margin requirements related to our interest rate swaps.

Our liquidity fluctuates based on our investment activities, leverage, capital raising activities, and changes in the fair value of our investments and derivative instruments. Our measurement of liquidity includes unrestricted cash and cash equivalents and unencumbered Agency MBS, which are recognized as assets on our consolidated balance sheet. In our measure of liquidity, we also include the fair value of noncash collateral pledged to us by our counterparties, which we typically receive when the fair value of our pledged collateral exceeds our current margin requirement. Our liquidity as of December 31, 2024, was $658.3 million, which consisted of unrestricted cash of $377.1 million and unencumbered Agency MBS with a fair value of $281.2 million. Our liquidity as of December 31, 2023, was $453.6 million.

We continuously monitor our liquidity, especially with potential risk events on the horizon, such as uncertainty regarding Federal Reserve policy decisions, the size of the Federal Reserve’s balance sheet, quantitative tightening or easing measures, the frequent potential for a government shutdown, and the impact on global markets stemming from global central bank policies. We are also monitoring the wars and conflicts around the globe. We continuously assess the adequacy of our liquidity under various scenarios based on changes in the fair value of our investments and derivative instruments due to market factors such as changes in the absolute level of interest rates and the shape of the yield curve, credit spreads, lender haircuts, and prepayment speeds, which in turn have an impact on derivative margin requirements. In performing these analyses, we will also consider the current state of the fixed-income markets and the repurchase agreement markets to determine if market forces such as supply-demand imbalances or structural changes to these markets could change the liquidity of MBS or the availability of financing. We have not experienced any material changes in the terms of our repurchase agreements with our counterparties, and they have not indicated to us any concerns regarding access to liquidity.

Our perception of the liquidity of our investments and market conditions significantly influences our targeted leverage. In general, our leverage will increase if we view the risk-reward opportunity of higher leverage on our capital outweighs the risk to our liquidity and book value. Our leverage, which we calculate using total liabilities plus the cost basis of TBA long positions, was 7.9 times shareholders’ equity as of December 31, 2024. We include 100% of the cost basis of our TBA securities in evaluating our leverage because it is possible under certain market conditions that it may be uneconomical for us to roll a TBA long position into future months, which may result in us having to take physical delivery of the underlying securities and use cash or other financing sources to fund our total purchase commitment.

Repurchase Agreements

Leverage based solely on repurchase agreement amounts outstanding was 5.5 times shareholders’ equity as of December 31, 2024. Our repurchase agreement borrowings are uncommitted with terms renewable at the discretion of our lenders and generally have original terms to maturity of overnight to six months, though in some instances, we may enter into longer-dated maturities depending on market conditions. We seek to maintain unused capacity under our existing repurchase agreement credit lines with multiple counterparties, which helps protect us in the event of a counterparty's failure to renew existing repurchase agreements. As part of our continuous evaluation of counterparty risk, we maintain our highest counterparty exposures with broker-dealer subsidiaries of regulated financial institutions or primary dealers.

The amount outstanding for our repurchase agreement borrowings will typically fluctuate in any given period as it is dependent upon several factors, but particularly the extent to which we are active in buying and selling securities, including the volume of activity in TBA dollar roll transactions versus buying specified pools. The following table presents information regarding the balances of our repurchase agreement borrowings as of and for the periods indicated:

[[GREPCENT_TABLE]]
[["","Repurchase Agreements"],["($s in thousands)","Balance Outstanding As of Quarter End","","Average Balance Outstanding For the Quarter Ended","","Maximum Balance Outstanding During the Quarter Ended"],["December 31, 2024","$","6,563,120","","","$","6,431,743","","","$","6,568,805"],["September 30, 2024","6,423,890","","","5,943,805","","","6,461,475"],["June 30, 2024","5,494,428","","","5,410,282","","","5,529,856"],["March 31, 2024","5,284,708","","","5,365,575","","","5,469,434"],["December 31, 2023","5,381,104","","","5,168,821","","","5,381,354"],["September 30, 2023","5,002,230","","","4,773,435","","","5,037,440"],["June 30, 2023","4,201,901","","","3,447,406","","","4,203,788"],["March 31, 2023","2,937,124","","","2,713,481","","","2,959,263"],["December 31, 2022","2,644,405","","","2,727,274","","","3,072,483"],["September 30, 2022","2,991,876","","","2,398,268","","","3,082,138"],["June 30, 2022","2,202,648","","","2,486,217","","","2,949,918"],["March 31, 2022","2,952,802","","","2,806,212","","","2,973,475"]]
[[/GREPCENT_TABLE]]

For our repurchase agreement borrowings, we are required to post and maintain margin to the lender (i.e., collateral in excess of the repurchase agreement borrowing) in order to support the amount of the financing. This excess collateral is often referred to as a “haircut” and is intended to provide the lender protection against fluctuations in the fair value of the collateral and/or the failure by us to repay the borrowing at maturity. Lenders have the right to change haircut requirements at maturity of the repurchase agreement and may change their haircuts based on market conditions and the perceived riskiness of the collateral pledged. If the fair value of the collateral falls below the amount required by the lender, the lender has the right to demand additional margin or collateral. These demands are referred to as “margin calls,” and if we fail to meet any margin call, our lenders have the right to terminate the repurchase agreement and sell any collateral pledged. The weighted average haircut for our borrowings as of December 31, 2024, was consistent with prior periods, typically averaging less than 5% for borrowings collateralized with Agency RMBS and CMBS and between 10-14% for borrowings collateralized with CMBS IO.

The collateral we post in excess of our repurchase agreement borrowing with any counterparty is also typically referred to by us as “equity at risk,” which represents the potential loss to the Company if the counterparty is unable or unwilling to return collateral securing the repurchase agreement borrowing at its maturity. The counterparties with whom we have the greatest amounts of equity at risk may vary significantly during any given period due to the short-term and uncommitted nature of the repurchase agreement borrowings. As of December 31, 2024, we had amounts outstanding under 27 different repurchase agreements and did not have more than 10% of equity at risk with any counterparty or group of related counterparties.

We have various financial and operating covenants in certain of our repurchase agreements, which we monitor and evaluate on an ongoing basis for compliance as well as for impacts these customary covenants may have on our operating and financing flexibility. We do not believe we are subject to any covenants that materially restrict our financing flexibility. We were in full compliance with our debt covenants as of December 31, 2024, and we are not aware of circumstances that could potentially result in our non-compliance in the near future.

Derivative Instruments

Derivative instruments we enter into may require us to post initial margin at inception and daily variation margin based on subsequent changes in their fair value. Daily variation margin requirements also entitle us to

receive collateral from our counterparties if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement. The collateral posted as margin by us is typically in cash. As of December 31, 2024, we had cash collateral posted to our counterparties of $244.4 million under these agreements.

Collateral requirements for interest rate derivative instruments are typically governed by the central clearing exchange and the associated futures commission merchant, which may establish margin requirements in excess of the clearing exchange. Collateral requirements for our TBA contracts are governed by the Mortgage-Backed Securities Division ("MBSD") of the Fixed Income Clearing Corporation and, if applicable, by our third-party brokerage agreements, which may establish margin levels in excess of the MBSD. Our TBA contracts, which are subject to master securities forward transaction agreements published by the Securities Industry and Financial Markets Association as well as supplemental terms and conditions with each counterparty, generally provide that valuations for our TBA contracts and any pledged collateral are to be obtained from a generally recognized source agreed to by both parties. However, in certain circumstances, our counterparties have the sole discretion to determine the value of the TBA contract and any pledged collateral. In such instances, our counterparties are required to act in good faith in making determinations of value. In the event of a margin call, we must generally provide additional collateral on the same business day.

The following table provides details on the “net receipts (payments) on derivative instruments” shown on our consolidated statements of cash flows for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended"],["","","December 31,"],["Cash received (paid) by instrument:","","2024","","2023","","2022"],["","","($s in thousands)"],["Interest rate swaps:"],["Net variation margin received","","$","146,379","","","$","\u2014","","","$","\u2014"],["Net periodic interest (1)","","\u2014","","","\u2014","","","\u2014"],["","","146,379","","","\u2014","","","\u2014"],["U.S. Treasury futures, including put options:(2)"],["Net variation margin received","","218,399","","","(214,622)","","","46,460"],["(Paid) received upon maturity/termination","","(46,955)","","","214,904","","","662,549"],["","","171,444","","","282","","","709,009"],["TBA securities:"],["Received (paid) upon settlement","","45,106","","","(96,250)","","","(306,369)"],["Interest rate swaptions:"],["Received upon maturity/termination","","\u2014","","","\u2014","","","50,940"],["","","\u2014","","","\u2014","","","50,940"],["Net receipts (payments) on derivative instruments","","$","362,929","","","$","(95,968)","","","$","453,580"]]
[[/GREPCENT_TABLE]]

(1)Net periodic interest from our effective interest rate swaps are recognized as income or expense during the period earned (incurred), but the cash is not received or paid until the anniversary of each agreement’s effective date or upon maturity.

(2)The Company did not use put options on U.S. Treasury futures during the year ended December 31, 2024.

Dividends

We set our dividend based on many factors, including our view on long-term returns, yield on comparable investments, liquidity and market risk, and levels of taxable income. Among these factors, we focus on economic returns and taxable income within the context of the distribution requirements. As a REIT, we are required to distribute to our shareholders amounts equal to at least 90% of our REIT taxable income for each taxable year after certain deductions, including the separate dividend requirements of the Series C Preferred Stock. 

We designate certain derivative instruments as interest rate hedges for tax purposes. Realized gains (losses) resulting from the difference in fair value and the amount of cash received or paid upon termination or maturity of derivative instruments are included in GAAP earnings in the same reporting period in which the derivative instrument matures or is terminated by the Company but are generally not recognized in REIT taxable income until future periods. Our remaining net deferred tax hedge gain was estimated to be $719.0 million as of December 31, 2024, which will be amortized into REIT taxable income over several years. As of December 31, 2024, we also had $557.9 million in capital loss carryforwards, all of which will expire by either December 31, 2027 or by December 31, 2028. Due to these amounts and other temporary and permanent differences between GAAP net income and REIT taxable income, coupled with the degree of uncertainty about the trajectory of interest rates, we cannot reasonably estimate how much the deferred tax hedge gains to be recognized will impact our dividend declarations during 2025 or in any given year.

We generally fund dividend distributions through portfolio cash flows. If we make dividend distributions in excess of our portfolio cash flows during the period, whether for purposes of meeting our REIT distribution requirements or other reasons, those distributions are generally funded either through our existing cash balances or through the return of principal from our investments (either through repayment or sale). Please refer to "Operating and Regulatory Structure" within Part I, Item 1, "Business," as well as Part I, Item 1A, “Risk Factors” of this Form 10-K for additional important information regarding dividends declared on our taxable income.

RECENT ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 of the Notes to the Consolidated Financial Statements contained within Part II, Item 8 of this Annual Report on Form 10-K for additional information.

CRITICAL ACCOUNTING ESTIMATES

The discussion and analysis of our financial condition and results of operations are based in large part upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and disclosure of contingent assets and liabilities. We base these estimates and judgments on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual results, however, may differ significantly from the estimated amounts we have recorded.

The following discussion provides information on our critical accounting policies, which require management's most difficult, subjective, or complex judgments, and may result in materially different results under different assumptions and conditions. Please also refer to Note 1 of our Notes to the Consolidated Financial Statements included within Part II, Item 8 of this Annual Report on Form 10-K for additional information related to significant accounting policies.

Fair Value Measurements. The fair value of our Agency MBS, as well as a majority of our non-Agency MBS, is based on estimated prices provided by third-party pricing services who have access to observable market information through trading desks and various information services. Most of our MBS are substantially similar to securities actively traded and observable in the market. To determine each security's valuation, the pricing service uses either a market approach or income approach, which rely on observable market data. The market approach uses prices and other relevant information that is generated by market transactions of identical or similar securities, while the income approach uses valuation techniques to convert estimated future cash flows to a discounted present value. Examples of these observable inputs and assumptions used in the valuation techniques include market interest rates, credit spreads, cash flows, and projected prepayment speeds, among other factors. Management reviews the prices it receives from the pricing service for reasonableness using broker quotes as well as other third-party pricing services.

In addition, management reviews the prices received for each security by comparing those prices to a second pricing source. If the price of a security is obtained from quoted prices for similar instruments or model-derived valuations whose inputs are observable, the security is classified as a level 2 security. The security is classified as a level 3 security if the inputs are unobservable, resulting in an estimate of fair value based primarily on management's judgment. Although it is rare, we may exclude a price received from a third party if we determine, based on our knowledge and expertise of the market, that the price received is significantly different from other

31

observable market data. Please refer to Note 6 of the Notes to the Consolidated Financial Statements contained within Part II, Item 8 of this Annual Report on Form 10-K for additional information on fair value measurements.

FORWARD-LOOKING STATEMENTS

Certain written statements in this Annual Report on Form 10-K that are not historical facts constitute “forward-looking statements” 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”). Statements in this report addressing expectations, assumptions, beliefs, projections, future plans and strategies, future events, developments that we expect or anticipate will occur in the future, and future operating results, capital management, and dividend policy are forward-looking statements. Forward-looking statements are based upon management’s beliefs, assumptions, and expectations as of the date of this report regarding future events and operating performance, considering all information currently available to us, and are applicable only as of the date of this report. Forward-looking statements generally can be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “will,” “intend,” “should,” “could,” or similar expressions. We caution readers not to place undue reliance on our forward-looking statements, which are not historical facts and may be based on projections, assumptions, expectations, and anticipated events that do not materialize. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Forward-looking statements in this Annual Report on Form 10-K may include, but are not limited to, statements about:

•Our business and investment strategy, including our ability to generate acceptable risk-adjusted returns, our target investment allocations, and our views on the future performance of MBS and other investments;

•Our views on the macroeconomic environment, monetary and fiscal policy, and conditions in the investment, credit, interest rate, and derivatives markets;

•Our views on inflation, market interest rates, and market spreads;

•Our views on the effect of actual or proposed actions of the Federal Reserve or other central banks with respect to monetary policy (including the targeted Fed Funds rate), and the potential impact of these actions on interest rates, borrowing costs, inflation, or unemployment;

•The effect of regulatory initiatives of the Federal Reserve, the Federal Housing Finance Agency, other financial regulators, and other central banks;

•Our financing strategy, including our target leverage ratios, our use of TBA dollar roll transactions, and anticipated trends in financing costs, including TBA dollar roll transaction costs, and our hedging strategy, including changes to the derivative instruments to which we are a party, and changes to government regulation of hedging instruments and our use of these instruments;

•Our investment portfolio composition and target investments;

•Our investment portfolio performance, including the fair value, yields, and forecasted prepayment speeds of our investments;

•Our liquidity and ability to access financing and the anticipated availability and cost of financing;

•Our capital stock activity, including the impact of stock issuances and repurchases;

•The amount, timing, and funding of future dividends;

•Our use of our tax NOL carryforward and other tax loss carryforwards;

•Future competition for and availability of investments, financing, and capital;

•Estimates of future interest expenses, including related to the Company’s repurchase agreements and derivative instruments;

•The status and effect of legislative reforms and regulatory rule-making or review processes, and the status of reform efforts and other business developments in the repurchase agreement financing market;

•Market, industry, and economic trends, and how these trends and related economic data may impact the behavior of market participants and financial regulators;

•The impact of recent bank failures, potential new regulations, and the potential for other bank failures this year;

•The impact of debt ceiling negotiations on interest rates, spreads, the U.S. Treasury market and the impact more broadly on fixed income and equity markets:

32

•Uncertainties regarding the war between Russia and Ukraine or Israel and Hamas and the related impacts on macroeconomic conditions, including, among other things, interest rates;

•The financial position and creditworthiness of the depository institutions in which the Company’s MBS and cash deposits are held;

•The impact of applicable tax and accounting requirements on us, including our tax treatment of derivative instruments such as TBAs, interest rate swaps, options, and futures;

•Our future compliance with covenants in our master repurchase agreements, ISDA agreements, and debt covenants in our other contractual agreements;

•Our reliance on a single service provider for our trading, portfolio management, and risk reporting systems;

•The implementation in a timely and cost-effective manner of our operating platform, which includes trading, portfolio management, risk reporting, and accounting services systems, and the anticipated benefits thereof; and

•Possible future effects of any global health crisis.

Forward-looking statements are inherently subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Not all these risks and other factors are known to us. New risks and uncertainties arise over time, and it is not possible to predict those events or how they may affect us. The projections, assumptions, expectations, or beliefs upon which the forward-looking statements are based can also change as a result of these risks or other factors. If such a risk or other factor materializes in future periods, our business, financial condition, liquidity, and results of operations may vary materially from those expressed or implied in our forward-looking statements.

While it is not possible to identify all factors that may cause actual results to differ from historical results or any results expressed or implied by forward-looking statements or that may cause our projections, assumptions, expectations, or beliefs to change, some of those factors include the following:

•the risks and uncertainties referenced in this Annual Report on Form 10-K, especially those incorporated by reference into Part I, Item 1A, “Risk Factors,”

•our ability to find suitable reinvestment opportunities;

•changes in domestic economic conditions;

•geopolitical events, such as terrorism, war, or other military conflict, including increased uncertainty regarding the wars between Russia and Ukraine and between Israel and Hamas, and the related impact on macroeconomic conditions as a result of such conflict;

•changes in interest rates and credit spreads, including the repricing of interest-earning assets and interest-bearing liabilities;

•our investment portfolio performance, particularly as it relates to cash flow, prepayment rates, and credit performance;

•the impact on markets and asset prices from changes in the Federal Reserve’s policies regarding the purchases of Agency RMBS, Agency CMBS, and U.S. Treasuries;

•actual or anticipated changes in Federal Reserve monetary policy or the monetary policy of other central banks;

•adverse reactions in U.S. financial markets related to actions of foreign central banks or the economic performance of foreign economies, including in particular China, Japan, the European Union, and the United Kingdom;

•uncertainty concerning the long-term fiscal health and stability of the United States;

•the cost and availability of financing, including the future availability of financing due to changes to regulation of, and capital requirements imposed upon, financial institutions;

•the cost and availability of new equity capital;

•changes in our leverage and use of leverage;

•changes to our investment strategy, operating policies, dividend policy, or asset allocations;

•the quality of performance of third-party service providers, including our sole third-party service provider for our critical operations and trade functions;

33

•the loss or unavailability of our third-party service provider’s service and technology that supports critical functions of our business related to our trading and borrowing activities due to outages, interruptions, or other failures;

•the level of defaults by borrowers on loans underlying MBS;

•changes in our industry;

•increased competition;

•changes in government regulations affecting our business;

•changes or volatility in the repurchase agreement financing markets and other credit markets;

•changes to the market for derivative instruments, including changes to margin requirements on derivative instruments;

•uncertainty regarding continued government support of the U.S. financial system and U.S. housing and real estate markets, or to reform the U.S. housing finance system, including the resolution of the conservatorship of Fannie Mae and Freddie Mac;

•the composition of the Board of Governors of the Federal Reserve;

•the political environment in the U.S.;

•systems failures or cybersecurity incidents; and

•exposure to current and future claims and litigation.