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, 2021~~March 31, 2022


☐			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

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.)

1555 Peachtree Street, N.E., Suite 1800,
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% Series A Cumulative Redeemable Preferred Stock~~

~~IVR PrA~~

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, 2021,~~April 30, 2022, there we~~re 289,680,760 outstanding~~were 329,917,927 outstanding shares of common stock of Invesco Mortgage Capital Inc.

Table of Contents

INVESCO MORTGAGE CAPITAL INC.

TABLE OF CONTENTS


		Page
PART I FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

	Unaudited Condensed Consolidated Balance Sheets as of ~~June 30, 2021~~March 31 , 202 2 and December 31, ~~2020~~202 1	1

	Unaudited Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31 , 202 2 and ~~2020~~20 2 1	2

	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30, 2021~~March 3 1 , 202 2 and ~~2020~~202 1	3

	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, ~~2021; June 30, 2021; March 31, 2020~~202 2 and ~~June 30, 2020~~2021	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~six~~th ree months ended ~~June 30, 2021~~Mar ch 31 , 202 2 and ~~2020~~202 1	65

	Notes to Condensed Consolidated Financial Statements	76

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2925

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5847

Item 4.	Controls and Procedures	6251

PART II OTHER INFORMATION		6352

Item 1.	Legal Proceedings	6352

Item 1A.	Risk Factors	6352

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6352

Item 3.	Defaults Upon Senior Securities	6352

Item 4.	Mine Safety Disclosures	6352

Item 5.	Other Information	6352

Item 6.	Exhibits	6554

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		As of			As of
$ in thousands, except share amounts	$ in thousands, except share amounts	June 30, 2021	December 31, 2020	$ in thousands, except share amounts	March 31, 2022	December 31, 2021
ASSETS	ASSETS			ASSETS
Mortgage-backed securities, at fair value (including pledged securities of $8,248,952 and $7,614,935, respectively; net of allowance for credit losses of $1,768 as of December 31, 2020)		8,730,663	8,172,182
Mortgage-backed securities, at fair value (including pledged securities of $5,607,777 and $7,326,175, respectively)				Mortgage-backed securities, at fair value (including pledged securities of $5,607,777 and $7,326,175, respectively)	5,992,494	7,804,259
U.S. Treasury securities, at fair value (including pledged securities of $482,445 as of March 31, 2022)				U.S. Treasury securities, at fair value (including pledged securities of $482,445 as of March 31, 2022)	482,445	—
Cash and cash equivalents	Cash and cash equivalents	134,664	148,011	Cash and cash equivalents	251,724	357,134
Restricted cash	Restricted cash	353,386	244,573	Restricted cash	245,809	219,918
Due from counterparties	Due from counterparties	300	1,078	Due from counterparties	47,793	7,985
Investment related receivable	Investment related receivable	17,809	15,840	Investment related receivable	15,214	16,766
Derivative assets, at fair value	Derivative assets, at fair value	4,417	10,004	Derivative assets, at fair value	17,674	270
Other assets	Other assets	35,461	41,163	Other assets	29,465	37,509
Total assets	Total assets	9,276,700	8,632,851	Total assets	7,082,618	8,443,841
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY			LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:	Liabilities:			Liabilities:
Repurchase agreements	Repurchase agreements	7,851,204	7,228,699	Repurchase agreements	5,837,420	6,987,834

Derivative liabilities, at fair value	Derivative liabilities, at fair value	17,262	6,344	Derivative liabilities, at fair value	77,613	14,356
Dividends payable	Dividends payable	26,071	18,970	Dividends payable	29,693	29,689
Investment related payable	Investment related payable	274	274	Investment related payable	1	—
Accrued interest payable	Accrued interest payable	377	823	Accrued interest payable	1,143	1,171
Collateral held payable	Collateral held payable	310	3,546	Collateral held payable	280	280
Accounts payable and accrued expenses	Accounts payable and accrued expenses	1,759	1,448	Accounts payable and accrued expenses	2,083	1,887
Due to affiliate	Due to affiliate	6,064	5,589	Due to affiliate	6,438	6,489
Total liabilities	Total liabilities	7,903,321	7,265,693	Total liabilities	5,954,671	7,041,706
Commitments and contingencies (See Note 14):		0	0
Commitments and contingencies (See Note 15):				Commitments and contingencies (See Note 15):	0	0
Stockholders' equity:	Stockholders' equity:			Stockholders' equity:
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:	Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:			Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:
7.75% Series A Cumulative Redeemable Preferred Stock: 0 shares and 5,600,000 shares issued and outstanding, respectively ($140,000 aggregate liquidation preference as of December 31, 2020)		0	135,356
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference)	7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference)	149,860	149,860	7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference)	149,860	149,860
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference)	7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference)	278,108	278,108	7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference)	278,108	278,108
Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 289,680,760 and 203,222,108 shares issued and outstanding, respectively		2,897	2,032
Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 329,917,927 and 329,874,780 shares issued and outstanding, respectively				Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 329,917,927 and 329,874,780 shares issued and outstanding, respectively	3,299	3,299
Additional paid in capital	Additional paid in capital	3,693,917	3,387,552	Additional paid in capital	3,816,544	3,816,406
Accumulated other comprehensive income	Accumulated other comprehensive income	49,921	58,605	Accumulated other comprehensive income	29,469	37,286
Retained earnings (distributions in excess of earnings)	Retained earnings (distributions in excess of earnings)	(2,801,324)	(2,644,355)	Retained earnings (distributions in excess of earnings)	(3,149,333)	(2,882,824)
Total stockholders’ equity	Total stockholders’ equity	1,373,379	1,367,158	Total stockholders’ equity	1,127,947	1,402,135
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	9,276,700	8,632,851	Total liabilities and stockholders' equity	7,082,618	8,443,841

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

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,			Three Months Ended March 31,
$ in thousands, except share amounts		2021	2020	2021	2020
$ in thousands, except share data						$ in thousands, except share data	2022	2021
Interest income	Interest income					Interest income
Mortgage-backed and credit risk transfer securities		42,634	29,628	82,068	215,164
Commercial and other loans		520	545	1,096	1,708
Mortgage-backed and other securities						Mortgage-backed and other securities	41,637	39,434
Commercial loan						Commercial loan	537	576
Total interest income	Total interest income	43,154	30,173	83,164	216,872	Total interest income	42,174	40,010
Interest expense	Interest expense					Interest expense
Repurchase agreements (1)	Repurchase agreements (1)	(3,177)	(1,270)	(4,837)	77,772	Repurchase agreements (1)	(2,104)	(1,660)
Secured loans		0	1,712	0	8,358

Total interest expense	Total interest expense	(3,177)	442	(4,837)	86,130	Total interest expense	(2,104)	(1,660)
Net interest income	Net interest income	46,331	29,731	88,001	130,742	Net interest income	44,278	41,670
Other income (loss)	Other income (loss)					Other income (loss)
Gain (loss) on investments, net	Gain (loss) on investments, net	72,620	(306,366)	(259,237)	(1,061,849)	Gain (loss) on investments, net	(504,388)	(331,857)
(Increase) decrease in provision for credit losses	(Increase) decrease in provision for credit losses	830	0	1,768	0	(Increase) decrease in provision for credit losses	—	938
Equity in earnings (losses) of unconsolidated ventures	Equity in earnings (losses) of unconsolidated ventures	331	318	237	488	Equity in earnings (losses) of unconsolidated ventures	71	(94)
Gain (loss) on derivative instruments, net	Gain (loss) on derivative instruments, net	(186,284)	(343)	100,677	(911,122)	Gain (loss) on derivative instruments, net	238,860	286,961
Realized and unrealized credit derivative income (loss), net		0	(2,738)	0	(35,790)
Net gain (loss) on extinguishment of debt		0	3,701	0	(1,107)

Other investment income (loss), net	Other investment income (loss), net	16	731	0	1,534	Other investment income (loss), net	55	(16)
Total other income (loss)	Total other income (loss)	(112,487)	(304,697)	(156,555)	(2,007,846)	Total other income (loss)	(265,402)	(44,068)
Expenses	Expenses					Expenses
Management fee – related party	Management fee – related party	5,455	9,793	10,339	20,746	Management fee – related party	5,274	4,884
General and administrative	General and administrative	2,147	4,080	4,140	7,181	General and administrative	2,024	1,993
Total expenses	Total expenses	7,602	13,873	14,479	27,927	Total expenses	7,298	6,877
Net income (loss) attributable to Invesco Mortgage Capital Inc.		(73,758)	(288,839)	(83,033)	(1,905,031)
Net income (loss)						Net income (loss)	(228,422)	(9,275)
Dividends to preferred stockholders	Dividends to preferred stockholders	9,900	11,106	21,007	22,213	Dividends to preferred stockholders	8,394	11,107
Issuance and redemption costs of redeemed preferred stock		4,682	0	4,682	0

Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	(88,340)	(299,945)	(108,722)	(1,927,244)	Net income (loss) attributable to common stockholders	(236,816)	(20,382)
Net income (loss) per share:
Earnings (loss) per share:						Earnings (loss) per share:
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders					Net income (loss) attributable to common stockholders
Basic	Basic	(0.34)	(1.80)	(0.45)	(11.91)	Basic	(0.72)	(0.09)
Diluted	Diluted	(0.34)	(1.80)	(0.45)	(11.91)	Diluted	(0.72)	(0.09)

(1)~~Periods with negative~~Negative interest expense on repurchase agreements ~~are~~is due to amortization of net deferred gains on de-designated interest rate swaps that exceeds current period interest expense on repurchase agreements. For further information on amortization of amounts classified in accumulated other comprehensive income before we discontinued hedge accounting, see Note 89 - "Derivatives and Hedging Activities" and Note 1213 - "Stockholders' Equity".

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

Table of Contents

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
$ in thousands	$ in thousands	2021	2020	2021	2020	$ in thousands	2022	2021
Net income (loss)	Net income (loss)	(73,758)	(288,839)	(83,033)	(1,905,031)	Net income (loss)	(228,422)	(9,275)
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net		1,155	(53,271)	2,136	(239,876)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net		0	34,782	0	71,739
Unrealized gain (loss) on mortgage-backed securities, net						Unrealized gain (loss) on mortgage-backed securities, net	(2,421)	981

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	(5,429)	(4,503)	(10,797)	(14,570)	Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	(5,196)	(5,368)
Currency translation adjustments on investment in unconsolidated venture	Currency translation adjustments on investment in unconsolidated venture	(632)	(388)	(23)	92	Currency translation adjustments on investment in unconsolidated venture	(200)	609
Total other comprehensive income (loss)	Total other comprehensive income (loss)	(4,906)	(23,380)	(8,684)	(182,615)	Total other comprehensive income (loss)	(7,817)	(3,778)
Comprehensive income (loss)	Comprehensive income (loss)	(78,664)	(312,219)	(91,717)	(2,087,646)	Comprehensive income (loss)	(236,239)	(13,053)
Less: Dividends to preferred stockholders	Less: Dividends to preferred stockholders	(9,900)	(11,106)	(21,007)	(22,213)	Less: Dividends to preferred stockholders	(8,394)	(11,107)
Less: Issuance and redemption costs of redeemed preferred stock		(4,682)	0	(4,682)	0

Comprehensive income (loss) attributable to common stockholders	Comprehensive income (loss) attributable to common stockholders	(93,246)	(323,325)	(117,406)	(2,109,859)	Comprehensive income (loss) attributable to common stockholders	(244,633)	(24,160)

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

Table of Contents

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the three months ended March 31, ~~2021~~2022 and ~~June 30,~~ 2021

(Unaudited)


														Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)				Retained Earnings (Distributions in excess of earnings)		Total Stockholders’ Equity																																	Additional Paid in Capital					Accumulated Other Comprehensive Income (Loss)					Retained Earnings (Distributions in excess of earnings)					Total Stockholders’ Equity
		Series A Preferred Stock		Series B Preferred Stock			Series C Preferred Stock																							Series B Preferred Stock								Series C Preferred Stock																Additional Paid in Capital
$ in thousands, except share amounts	$ in thousands, except share amounts					Common Stock			$ in thousands, except share amounts				Common Stock														Additional Paid in Capital
		Shares	Amount		Shares			Amount		Shares		Amount							Shares						Amount						Additional Paid in Capital	Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Distributions in excess of earnings)									Shares				Amount				Shares												Amount									Shares		Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Distributions in excess of earnings)	Total Stockholders’ Equity
Balance at December 31, 2020		5,600,000	135,356	6,200,000	149,860		11,500,000	278,108	203,222,108		2,032					3,387,552		58,605		(2,644,355)		1,367,158
Balance at December 31, 2021																					Balance at December 31, 2021							6,200,000											149,860				11,500,000				278,108				329,874,780	3,299

Net income (loss)	Net income (loss)	—	—	—	—		—	—	—		—				—			—				(9,275)		(9,275)		Net income (loss)										—				—				—				—				—					—					—					—					(228,422)				(228,422)
Other comprehensive loss		—	—	—	—		—	—	—		—			—			(3,778)				—		(3,778)
Proceeds from issuance of common stock, net of offering costs		—	—	—	—		—	—	43,150,000		432			160,549			—				—		160,981
Other comprehensive income (loss)																						Other comprehensive income (loss)							—										—				—				—				—				—					—					(7,817)					—				(7,817)

Stock awards	Stock awards	—	—	—	—		—	—	25,602		0			—			—				—		0		Stock awards									—				—				—				—				43,147				—					—					—					—				—
Common stock dividends	Common stock dividends	—	—	—	—		—	—	—		—			—			—				(22,176)		(22,176)		Common stock dividends									—				—				—				—				—				—					—					—					(29,693)				(29,693)
Preferred stock dividends	Preferred stock dividends	—	—	—	—		—	—	—		—			—			—				(11,107)		(11,107)		Preferred stock dividends									—				—				—				—				—				—					—					—					(8,394)				(8,394)
Amortization of equity-based compensation	Amortization of equity-based compensation	—	—	—	—		—	—	—		—			129			—				—		129		Amortization of equity-based compensation									—				—				—				—				—				—					138					—					—				138
Balance at March 31, 2021		5,600,000	135,356	6,200,000	149,860		11,500,000	278,108	246,397,710		2,464			3,548,230			54,827				(2,686,913)		1,481,932
Net income (loss)		—	—	—	—		—	—	—		—			—			—				(73,758)		(73,758)
Other comprehensive income		—	—	—	—		—	—	—		—			—			(4,906)				—		(4,906)
Proceeds from issuance of common stock, net of offering costs		—	—	—	—		—		43,125,000		431			145,448			—				—		145,879

Stock awards		—	—	—	—		—		158,050		2			—			—				—		2
Common stock dividends		—	—	—	—		—	—	—		—			—			—				(26,071)		(26,071)
Preferred stock dividends		—	—	—	—		—	—	—		—			—			—				(9,900)		(9,900)
Redemption of preferred stock		(5,600,000)	(135,356)	—	—		—	—	—		—			—			—				(4,682)		(140,038)
Amortization of equity-based compensation		—	—	—	—		—	—	—		—			239			—				—		239
Balance at June 30, 2021		0	0	6,200,000	149,860		11,500,000	278,108	289,680,760		2,897			3,693,917			49,921				(2,801,324)		1,373,379
Balance at March 31, 2022																						Balance at March 31, 2022							6,200,000				149,860				11,500,000				278,108				329,917,927				3,299				3,816,544					29,469					(3,149,333)					1,127,947


									Additional Paid in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Distributions in excess of earnings)	Total Stockholders’ Equity
	Series A Preferred Stock		Series B Preferred Stock		Series C Preferred Stock
$ in thousands, except share amounts							Common Stock
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount
Balance at December 31, 2020	5,600,000	135,356	6,200,000	149,860	11,500,000	278,108	203,222,108	2,032	3,387,552	58,605	(2,644,355)	1,367,158

Net income (loss)	—	—	—	—	—	—	—	—	—	—	(9,275)	(9,275)
Other comprehensive income (loss)	—	—	—	—	—	—	—	—	—	(3,778)	—	(3,778)
Proceeds from issuance of common stock, net of offering costs	—	—	—	—	—	—	43,150,000	432	160,549	—	—	160,981


Stock awards	—	—	—	—	—	—	25,602	—	—	—	—	—
Common stock dividends	—	—	—	—	—	—	—	—	—	—	(22,176)	(22,176)
Preferred stock dividends	—	—	—	—	—	—	—	—	—	—	(11,107)	(11,107)
Amortization of equity-based compensation	—	—	—	—	—	—	—	—	129	—	—	129
Balance at March 31, 2021	5,600,000	135,356	6,200,000	149,860	11,500,000	278,108	246,397,710	2,464	3,548,230	54,827	(2,686,913)	1,481,932

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

Table of Contents

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS' EQUITY (Continued)~~CASH FLOWS

~~For the three months ended March 31, 2020 and June 30, 2020~~

(Unaudited)

Additional
Paid in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Distributions
in excess of
earnings) Total
Stockholders’
Equity
Series A
Preferred Stock Series B
Preferred Stock Series C
Preferred Stock
$ in thousands, except share amounts Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Balance at December 31, 2019 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 144,256,357 1,443 2,892,652 288,963 (814,483) 2,931,899
Cumulative effect of adoption of new accounting principle — — — — — — — — — — 342 342
Net income (loss) — — — — — — — — — — (1,616,192) (1,616,192)
Other comprehensive loss — — — — — — — — — (159,235) — (159,235)
Proceeds from issuance of common stock, net of offering costs — — — — — — 20,700,000 207 346,819 — — 347,026
Stock awards — — — — — — 10,000 0 — — — 0
Common stock dividends — — — — — — — — — — (82,483) (82,483)
Preferred stock dividends — — — — — — — — — — (11,107) (11,107)
Amortization of equity-based compensation — — — — — — — — 131 — — 131
Balance at March 31, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 164,966,357 1,650 3,239,602 129,728 (2,523,923) 1,410,381
Net income (loss) — — — — — — — — — — (288,839) (288,839)
Other comprehensive loss — — — — — — — — — (23,380) — (23,380)
Stock awards — — — — — — 22,500 0 — — — 0
Common stock dividends — — — — — — 16,338,511 163 74,071 — (3,626) 70,608
Preferred stock dividends — — — — — — — — — — (11,106) (11,106)
Amortization of equity-based compensation — — — — — — — — 128 — — 128
Balance at June 30, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 181,327,368 1,813 3,313,801 106,348 (2,827,494) 1,157,792


	Three Months Ended March 31,
$ in thousands	2022	2021
Cash Flows from Operating Activities
Net income (loss)	(228,422)	(9,275)
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	4,813	11,625
Realized and unrealized (gain) loss on derivative instruments, net	(237,576)	(291,510)

(Gain) loss on investments, net	504,388	331,857
Increase (decrease) in provision for credit losses	—	(938)
(Gain) loss from investments in unconsolidated ventures in excess of distributions received	34	18
Other amortization	(5,058)	(5,239)


Changes in operating assets and liabilities:
(Increase) decrease in operating assets	1,875	(1,990)
Increase (decrease) in operating liabilities	82	(43)
Net cash provided by (used in) operating activities	40,136	34,505
Cash Flows from Investing Activities
Purchase of mortgage-backed securities	(7,602,660)	(7,012,452)
Purchase of U.S. Treasury securities	(502,288)	—
Distributions from investments in unconsolidated ventures, net	7,388	1,233

Principal payments from mortgage-backed securities	168,316	200,590
Proceeds from sale of mortgage-backed securities	8,754,469	5,545,566

Settlement (termination) of forwards, swaps, swaptions and TBAs, net	283,429	282,250

Net change in due from counterparties and collateral held payable on derivative instruments	(38,829)	(3,438)


Net cash provided by (used in) investing activities	1,069,825	(986,251)
Cash Flows from Financing Activities
Proceeds from issuance of common stock	—	161,413




Proceeds from repurchase agreements	23,329,788	28,514,983
Principal repayments of repurchase agreements	(24,480,202)	(27,502,795)
Net change in due from counterparties and collateral held payable on repurchase agreements	(979)	(7,953)
Payments of deferred costs	(4)	(86)
Payments of dividends	(38,083)	(27,365)
Net cash provided by (used in) financing activities	(1,189,480)	1,138,197
Net change in cash, cash equivalents and restricted cash	(79,519)	186,451
Cash, cash equivalents and restricted cash, beginning of period	577,052	392,584
Cash, cash equivalents and restricted cash, end of period	497,533	579,035
Supplement Disclosure of Cash Flow Information
Interest paid	2,771	3,985
Non-cash Investing and Financing Activities Information
Net change in unrealized gain (loss) on mortgage-backed securities classified as available-for-sale	(2,421)	981
Dividends declared not paid	29,693	24,888

Net change in investment related receivable (payable)	15	(271)

Offering costs not paid	562	334

Change in foreign currency translation adjustment on other investments	200	(609)

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

Table of Contents

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~
Six Months Ended June 30,
$ in thousands 2021 2020
Cash Flows from Operating Activities
Net income (loss) (83,033) (1,905,031)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net 20,389 9,967
Realized and unrealized (gain) loss on derivative instruments, net (109,798) 923,046
Realized and unrealized (gain) loss on credit derivatives, net 0 41,635
(Gain) loss on investments, net 259,237 1,061,849
Increase (decrease) in provision for credit losses (1,768) 0
(Gain) loss from investments in unconsolidated ventures in excess of distributions received 24 243
Other amortization (10,427) (14,311)
Net (gain) loss on extinguishment of debt 0 1,107
Changes in operating assets and liabilities:
(Increase) decrease in operating assets (1,108) 54,567
Increase (decrease) in operating liabilities (39) (42,459)
Net cash provided by operating activities 73,477 130,613
Cash Flows from Investing Activities
Purchase of mortgage-backed and credit risk transfer securities (11,003,833) (4,953,645)
Distributions from investments in unconsolidated ventures, net 2,425 2,601
Change in other assets 0 40,846
Principal payments from mortgage-backed and credit risk transfer securities 416,524 690,085
Proceeds from sale of mortgage-backed and credit risk transfer securities 9,755,377 23,119,928
Payment on the sale of credit derivatives 0 (14,131)
Settlement (termination) of forwards, swaps, swaptions and TBAs, net 126,303 (904,358)
Redemption of Federal Home Loan Bank of Indianapolis stock 0 36,562
Net change in due from counterparties and collateral held payable on derivative instruments (942) (170)
Principal payments from commercial loans held-for-investment 0 136
Net cash provided by (used in) investing activities (704,146) 18,017,854
Cash Flows from Financing Activities
Proceeds from issuance of common stock 307,618 347,127
Redemption of preferred stock (140,038) 0
Principal repayments of secured loans 0 (910,000)
Proceeds from repurchase agreements 54,825,005 45,808,912
Principal repayments of repurchase agreements and related fees (54,202,500) (63,342,322)
Net change in due from counterparties and collateral held payable on repurchase agreements (1,516) 32,568
Payments of deferred offering costs (281) (94)
Payments of dividends (62,153) (102,590)
Net cash provided by (used in) financing activities 726,135 (18,166,399)
Net change in cash, cash equivalents and restricted cash 95,466 (17,932)
Cash, cash equivalents and restricted cash, beginning of period 392,584 289,502
Cash, cash equivalents and restricted cash, end of period 488,050 271,570
Supplement Disclosure of Cash Flow Information
Interest paid 6,406 144,530
Non-cash Investing and Financing Activities Information
Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities 2,136 (168,137)
Dividends declared not paid 26,071 6,339
Increase (decrease) in Agency CMBS purchase commitments 0 (99,557)
Net change in investment related receivable (payable) excluding Agency CMBS purchase commitments (5) 29,477
Dividend paid in common stock 0 74,234
Offering costs not paid (647) (101)
Change in foreign currency translation adjustment on other investments 23 (92)

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

~~Table of Contents~~

~~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"~~“Company” or ~~"we"~~“we”) is a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities ("~~MBS"~~MBS”) and other mortgage-related assets.

We currently invest in:

•Residential mortgage-backed securities ~~("RMBS"~~(“RMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association ("(“Ginnie ~~Mae"~~Mae”), or a federally chartered corporation such as the Federal National Mortgage Association ("(“Fannie ~~Mae"~~Mae”) or the Federal Home Loan Mortgage Corporation ("(“Freddie ~~Mac"~~Mac”) (collectively ~~"Agency RMBS"~~“Agency RMBS”);

•Commercial mortgage-backed securities ~~("CMBS"~~(“CMBS”) that are not guaranteed by a U.S. government agency or a federally chartered corporation ("(“non-Agency ~~CMBS"~~CMBS”);

•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation ("(“non-Agency ~~RMBS"~~RMBS”);

•~~Commercial~~A commercial mortgage ~~loans; and~~loan;

•Other real estate-related financing ~~agreements.~~

~~We have also historically invested in:~~

•~~CMBS that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Fannie Mae or Freddie Mac (collectively "Agency CMBS");~~

•~~Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");~~agreements; and

•~~Residential mortgage loans.~~U.S Treasury securities.

We conduct our business through IAS Operating Partnership L.P. (the ~~"Operating Partnership"~~“Operating Partnership”) and have 1 operating segment. We are externally managed and advised by Invesco Advisers, Inc. (our ~~"Manager"~~“Manager”), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. ~~("Invesco"~~(“Invesco”), a leading independent global investment management firm.

We elected to be taxed as a real estate investment trust ~~("REIT"~~(“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code ofof 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"~~“Investment Company” definition under the Investment Company Act of 1940, as amended (the ~~"1940 Act"~~“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, ~~2020.~~2021.

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 our 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 ~~and credit risk transfer~~ securities and allowances for credit losses. Actual results may differ from those estimates.

Table of Contents

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, ~~2020.~~2021 other than as detailed below.

~~Accounting Pronouncements Recently Issued~~U.S. Treasury Securities

~~In January 2021,~~U.S. Treasury securities are classified as trading securities and reported at fair value on our condensed consolidated balance sheets. Purchases of U.S. Treasury Securities are recorded on the ~~Financial Accounting Standards Board expanded existing accounting guidance for evaluating~~trade date. Changes in the ~~effects~~fair value of ~~reference rate reform~~U.S. Treasury securities are recognized within gain (loss) on ~~financial reporting. The new guidance expands~~investments, net in our condensed consolidated statements of operations. Coupon interest income is accrued based on the ~~temporary optional expedients~~outstanding principal balance of the securities and ~~exceptions to~~their contractual terms. Interest income on U.S. ~~GAAP for contract modifications, hedge accounting~~Treasury securities is recognized within mortgage-backed and other ~~relationships that reference London Interbank Overnight Financing Rate ("LIBOR") to apply to all derivative instruments affected by the market-wide change in the~~securities interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition). The guidance can be applied as of January 1, 2020. We are evaluating our contracts that are eligible for modification relief and may apply the elections prospectively as needed. We are currently evaluating what impact the guidance will haveincome on our condensed consolidated ~~financial statements.~~statements of operations. Similar to the Company's MBS, U.S. Treasury securities are valued based upon prices obtained from third party pricing vendors and classified as Level 2 assets within the fair value hierarchy.

Note 3 – Variable Interest Entities ("VIEs")

Our maximum risk of loss in VIEs in which we are not the primary beneficiary at ~~June 30, 2021~~March 31, 2022 is presented in the table below.


$ in thousands	$ in thousands	Carrying Amount	Company's Maximum Risk of Loss	$ in thousands	Carrying Amount	Company's Maximum Risk of Loss
Non-Agency CMBS	Non-Agency CMBS	63,800	63,800	Non-Agency CMBS	61,295	61,295
Non-Agency RMBS	Non-Agency RMBS	9,832	9,832	Non-Agency RMBS	8,402	8,402
Investments in unconsolidated ventures	Investments in unconsolidated ventures	13,936	13,936	Investments in unconsolidated ventures	4,854	4,854
Total	Total	87,568	87,568	Total	74,551	74,551

Refer to Note 4 - "Mortgage-Backed ~~and Credit Risk Transfer~~ Securities" and Note 56 - "Other Assets" for additional details regarding these investments.

~~Table of Contents~~

Note 4 – Mortgage-Backed ~~and Credit Risk Transfer~~ Securities

During the first half of 2020, we experienced unprecedented market conditions as a result of the COVID-19 pandemic and sold a substantial portion of our MBS and GSE CRT portfolio to generate liquidity and reduce leverage. We resumed investing in Agency RMBS in July 2020.

The following tables summarize our MBS portfolio by asset type as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


June 30, 2021
March 31, 2022									March 31, 2022
$ in thousands	$ in thousands	Principal/ Notional Balance	Unamortized Premium (Discount)	Amortized Cost	Unrealized Gain/ (Loss), net	Fair Value	Period- end Weighted Average Yield (1)		$ in thousands	Principal/ Notional Balance	Unamortized Premium (Discount)	Amortized Cost	Unrealized Gain/ (Loss), net	Fair Value	Period- end Weighted Average Yield (1)
Agency RMBS:	Agency RMBS:								Agency RMBS:
30 year fixed-rate	30 year fixed-rate	8,381,884	257,610	8,639,494	3,336	8,642,830	2.04	%	30 year fixed-rate	6,132,696	(43,156)	6,089,540	(227,561)	5,861,979	2.54	%
Total Agency RMBS pass-through	Total Agency RMBS pass-through	8,381,884	257,610	8,639,494	3,336	8,642,830	2.04	%	Total Agency RMBS pass-through	6,132,696	(43,156)	6,089,540	(227,561)	5,861,979	2.54	%
Agency-CMO (2)	Agency-CMO (2)	116,495	(101,995)	14,500	(299)	14,201	7.33	%	Agency-CMO (2)	441,397	(382,576)	58,821	1,997	60,818	6.32	%
Non-Agency CMBS	Non-Agency CMBS	61,427	(4,070)	57,357	6,443	63,800	8.75	%	Non-Agency CMBS	61,427	(2,594)	58,833	2,462	61,295	8.62	%
Non-Agency RMBS (3)(4)(5)	Non-Agency RMBS (3)(4)(5)	521,837	(512,027)	9,810	22	9,832	10.02	%	Non-Agency RMBS (3)(4)(5)	354,236	(345,577)	8,659	(257)	8,402	8.32	%
Total	Total	9,081,643	(360,482)	8,721,161	9,502	8,730,663	2.10	%	Total	6,989,756	(773,903)	6,215,853	(223,359)	5,992,494	2.64	%

(1)Period-end weighted average yield is based on amortized cost as of ~~June 30, 2021~~March 31, 2022 and incorporates future prepayment and loss assumptions.

(2)All Agency collateralized mortgage ~~obligation ("Agency-CMO"~~obligations (“Agency-CMO”) are interest-only securities ("(“Agency ~~IO"~~IO”).

(3)Non-Agency RMBS is ~~64.5%~~62.6% fixed rate, ~~34.5%~~36.4% variable rate, and 1.0% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying Hybrid adjustable-rate mortgage ~~("ARM"~~(“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) based on estimated future cash flows of the securities.~~

~~(5)Non-Agency RMBS includes interest-only securities ("non-Agency IO") which represent 98.2% of principal/notional balance, 47.0% of amortized cost and 30.0% of fair value.~~

December 31, 2020
$ 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)
Agency RMBS:
30 year fixed-rate 7,635,107 391,644 8,026,751 0 24,115 8,050,866 1.86 %
Total Agency RMBS pass-through 7,635,107 391,644 8,026,751 0 24,115 8,050,866 1.86 %
Agency-CMO (2)
19,634 (19,634) — 0 — — 0 %
Non-Agency CMBS 112,549 (5,791) 106,758 (1,768) 4,593 109,583 9.40 %
Non-Agency RMBS (3)(4)(5)
790,627 (779,660) 10,967 0 766 11,733 7.83 %
Total 8,557,917 (413,441) 8,144,476 (1,768) 29,474 8,172,182 1.97 %

~~(1)Period-end weighted average yield is based on amortized cost as of December 31, 2020 and incorporates future prepayment and loss assumptions.~~

~~(2)All Agency-CMO are Agency IO.~~

~~(3)Non-Agency RMBS is 67.3% fixed rate, 31.8% variable rate and 0.9% 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 interest-only securities ("non-Agency IO") which represent 97.5% of principal/notional balance, 44.1% of amortized cost and 18.3% of fair value.

Table of Contents


December 31, 2021
$ in thousands	Principal/Notional Balance	Unamortized Premium (Discount)	Amortized Cost	Unrealized Gain/ (Loss), net	Fair Value	Period- end Weighted Average Yield (1)
Agency RMBS:
30 year fixed-rate	7,514,229	246,183	7,760,412	(58,889)	7,701,523	2.07	%
Total Agency RMBS pass-through	7,514,229	246,183	7,760,412	(58,889)	7,701,523	2.07	%
Agency-CMO (2)	235,216	(203,180)	32,036	(1,279)	30,757	6.47	%
Non-Agency CMBS	61,427	(3,096)	58,331	4,578	62,909	8.63	%
Non-Agency RMBS (3)(4)(5)	392,543	(383,591)	8,952	118	9,070	5.26	%
Total	8,203,415	(343,684)	7,859,731	(55,472)	7,804,259	2.14	%

(1)Period-end weighted average yield is based on amortized cost as of December 31, 2021 and incorporates future prepayment and loss assumptions.

(2)All Agency-CMO are Agency IO.

(3)Non-Agency RMBS is 63.5% fixed rate, 35.6% variable rate and 0.9% 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 non-Agency IO which represent ~~98.8%~~97.7% of principal/notional balance, ~~49.3%~~44.8% of amortized cost and ~~41.5%~~19.9% 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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, approximately 99% of our MBS are accounted for under the fair value option.

~~Table of Contents~~


	March 31, 2022			December 31, 2021
$ 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
Agency RMBS:
30 year fixed-rate	—	5,861,979	5,861,979	—	7,701,523	7,701,523
Total Agency RMBS pass-through	—	5,861,979	5,861,979	—	7,701,523	7,701,523
Agency-CMO	—	60,818	60,818	—	30,757	30,757
Non-Agency CMBS	61,295	—	61,295	62,909	—	62,909
Non-Agency RMBS	6,869	1,533	8,402	7,288	1,782	9,070
Total	68,164	5,924,330	5,992,494	70,197	7,734,062	7,804,259

June 30, 2021 December 31, 2020
$ 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
Agency RMBS:
30 year fixed-rate 0 8,642,830 8,642,830 0 8,050,866 8,050,866
Total RMBS Agency pass-through 0 8,642,830 8,642,830 0 8,050,866 8,050,866
Agency-CMO 0 14,201 14,201 0 0 —
Non-Agency CMBS 63,800 0 63,800 109,583 0 109,583
Non-Agency RMBS 7,078 2,754 9,832 7,267 4,466 11,733
Total 70,878 8,659,785 8,730,663 116,850 8,055,332 8,172,182

The components of the carrying value of our MBS portfolio at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are presented below. Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our condensed consolidated balance sheets, was ~~$17.3~~$14.1 million at~~June 30, 2021~~ March 31, 2022 (December 31, ~~2020: $15.4~~2021: $16.6 million).


	March 31, 2022
$ in thousands	MBS	Interest-Only Securities	Total
Principal/notional balance	6,203,136	786,620	6,989,756
Unamortized premium	75,067	—	75,067
Unamortized discount	(124,990)	(723,980)	(848,970)

Gross unrealized gains (1)	4,483	3,399	7,882
Gross unrealized losses (1)	(227,561)	(3,680)	(231,241)
Fair value	5,930,135	62,359	5,992,494

Table of Contents

June 30, 2021
$ in thousands MBS Interest-Only Securities Total
Principal/notional balance 8,452,735 628,908 9,081,643
Unamortized premium 259,487 0 259,487
Unamortized discount (10,176) (609,793) (619,969)
Gross unrealized gains (1)
33,332 45 33,377
Gross unrealized losses (1)
(21,868) (2,007) (23,875)
Fair value 8,713,510 17,153 8,730,663


		December 31, 2020				December 31, 2021
$ in thousands	$ in thousands	MBS	Interest-Only Securities	Total	$ in thousands	MBS	Interest-Only Securities	Total
Principal/notional balance	Principal/notional balance	7,757,491	800,426	8,557,917	Principal/notional balance	7,584,812	618,603	8,203,415
Unamortized premium	Unamortized premium	391,644	0	391,644	Unamortized premium	250,771	—	250,771
Unamortized discount	Unamortized discount	(10,067)	(795,018)	(805,085)	Unamortized discount	(11,902)	(582,553)	(594,455)
Allowance for credit losses		(1,768)	0	(1,768)

Gross unrealized gains (1)	Gross unrealized gains (1)	34,539	103	34,642	Gross unrealized gains (1)	8,754	109	8,863
Gross unrealized losses (1)	Gross unrealized losses (1)	(4,527)	(641)	(5,168)	Gross unrealized losses (1)	(60,741)	(3,594)	(64,335)
Fair value	Fair value	8,167,312	4,870	8,172,182	Fair value	7,771,694	32,565	7,804,259

(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,~~March 31, 2022 and 2021 ~~and 2020~~ is provided below in this Note 4.

The following table summarizes our MBS portfolio according to estimated weighted average life classifications as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021.


$ in thousands	$ in thousands	June 30, 2021	December 31, 2020	$ in thousands	March 31, 2022	December 31, 2021
Less than one year	Less than one year	264	22,112	Less than one year	22,792	23,150
Greater than one year and less than five years	Greater than one year and less than five years	898,499	5,303,917	Greater than one year and less than five years	38,627	891,510
Greater than or equal to five years	Greater than or equal to five years	7,831,900	2,846,153	Greater than or equal to five years	5,931,075	6,889,599
Total	Total	8,730,663	8,172,182	Total	5,992,494	7,804,259

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 at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~

~~Table of Contents~~2021.

~~June 30, 2021~~
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
Agency RMBS:
30 year fixed-rate 4,576,277 (21,868) 38 0 0 0 4,576,277 (21,868) 38
Total Agency RMBS pass-through 4,576,277 (21,868) 38 0 0 0 4,576,277 (21,868) 38
Agency-CMO 11,640 (335) 3 0 0 0 11,640 (335) 3
Non-Agency RMBS 2,620 (1,648) 10 14 (24) 4 2,634 (1,672) 14
Total (1)
4,590,537 (23,851) 51 14 (24) 4 4,590,551 (23,875) 55

~~(1)Fair value option has been elected for all securities in an unrealized loss position.~~

~~December~~March 31, ~~2020~~2022


		Less than 12 Months			12 Months or More			Total				Less than 12 Months			12 Months or More			Total
$ in thousands	$ in thousands	Fair Value	Unrealized Losses	Number of Securities	Fair Value	Unrealized Losses	Number of Securities	Fair Value	Unrealized Losses	Number of Securities	$ in thousands	Fair Value	Unrealized Losses	Number of Securities	Fair Value	Unrealized Losses	Number of Securities	Fair Value	Unrealized Losses	Number of Securities
Agency RMBS:	Agency RMBS:										Agency RMBS:
30 year fixed-rate	30 year fixed-rate	1,496,279	(4,108)	20	0	0	0	1,496,279	(4,108)	20	30 year fixed-rate	5,861,979	(227,561)	36	—	—	—	5,861,979	(227,561)	36
Total Agency RMBS pass-through (1)	Total Agency RMBS pass-through (1)	1,496,279	(4,108)	20	0	0	0	1,496,279	(4,108)	20	Total Agency RMBS pass-through (1)	5,861,979	(227,561)	36	—	—	—	5,861,979	(227,561)	36
Agency-CMO (1)											Agency-CMO (1)	27,175	(1,401)	5	—	—	—	27,175	(1,401)	5

Non-Agency CMBS (2)		27,069	(419)	1	0	0	0	27,069	(419)	1
Non-Agency RMBS ~~(3)~~(2)	Non-Agency RMBS ~~(3)~~(2)	2,681	(438)	6	1,612	(203)	7	4,293	(641)	13	Non-Agency RMBS ~~(3)~~(2)	113	(142)	1	1,427	(2,137)	13	1,540	(2,279)	14
Total	Total	1,526,029	(4,965)	27	1,612	(203)	7	1,527,641	(5,168)	34	Total	5,889,267	(229,104)	42	1,427	(2,137)	13	5,890,694	(231,241)	55

(1)Fair value option has been elected for all Agency ~~RMBS~~securities in an unrealized loss position.

(2)~~Unrealized~~Includes non-Agency IO with fair value of $1.4 million for which the fair value option has been elected. Such securities have unrealized losses of $2.1 million. The remaining $142,000 of unrealized losses on non-Agency ~~CMBS~~RMBS 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)~~Table of Contents

December 31, 2021


	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
Agency RMBS:
30 year fixed-rate	6,838,999	(60,741)	54	—	—	—	6,838,999	(60,741)	54
Total Agency RMBS pass-through (1)	6,838,999	(60,741)	54	—	—	—	6,838,999	(60,741)	54
Agency-CMO (1)	21,810	(1,389)	5	—	—	—	21,810	(1,389)	5

Non-Agency RMBS (2)	767	(1,132)	5	1,042	(1,073)	9	1,809	(2,205)	14
Total	6,861,576	(63,262)	64	1,042	(1,073)	9	6,862,618	(64,335)	73

(1)Fair value option has been elected for all ~~non-Agency RMBS~~Agency securities in an unrealized loss position.

(2)

AsIncludes non-Agency IO with fair value of ~~December 31, 2020, we had recorded~~$1.7 million for which the fair value option has been elected. Such securities have unrealized losses of $2.1 million. The remaining $136,000 of unrealized losses on non-Agency RMBS are included in accumulated other comprehensive income. These losses are not reflected in an allowance for credit losses ~~of $1.8 million~~based on a ~~single non-Agency CMBS on our condensed consolidated balance sheet. We recorded an $830,000 and a $1.8 million decrease in the provision for credit losses on our condensed consolidated statement~~comparison of ~~operations during the three and six months ended June 30, 2021, respectively.~~ discounted expected cash flows to current amortized cost basis.

As of ~~June 30,~~March 31, 2022 and December 31, 2021, we ~~do 0t~~did not have an allowance for credit losses recorded on our condensed consolidated balance ~~sheet.~~sheets. We ~~did not record any provisions~~recorded a $938,000 decrease in our provision for credit losses during the three ~~and six~~ months ended June 30, 2020. During the three and six months ended June 30, 2020, we recorded impairments of $6.3 million and $85.1 million, respectively, on our condensed consolidated statement of operations because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis.March 31, 2021. 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 2021 2021
Beginning allowance for credit losses (830) (1,768)
Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period 830 1,768
Ending allowance for credit losses 0 0

~~Table of Contents~~


												Three Months Ended March 31,
$ in thousands												2021
Beginning allowance for credit losses												(1,768)

Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period												938

Ending allowance for credit losses												(830)

The following table summarizes the components of our total gain (loss) on investments, net for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2021 2020 2021 2020
Gross realized gains on sale of investments 0 253,737 201 581,865
Gross realized losses on sale of investments (118,006) (658,476) (235,054) (990,889)
Impairment of investments the Company intends to sell or more likely than not will be required to sell before recovery of amortized cost basis and other impairments 0 (6,287) 0 (85,121)
Net unrealized gains and losses on MBS and GSE CRT accounted for under the fair value option 189,804 105,445 (22,108) (561,427)
Net unrealized gains and losses on commercial loan and loan participation interest 822 3,023 (2,276) (2,469)
Realized loss on loan participation interest 0 (3,808) 0 (3,808)
Total gain (loss) on investments, net 72,620 (306,366) (259,237) (1,061,849)


	Three Months Ended March 31,
$ in thousands	2022	2021
Gross realized gains on sale of MBS	—	201
Gross realized losses on sale of MBS	(318,970)	(117,048)

Net unrealized gains (losses) on MBS accounted for under the fair value option	(165,467)	(211,912)
Net unrealized gains (losses) on commercial loan	(124)	(3,098)
Net unrealized gains (losses) on U.S. Treasury securities	(19,827)	—
Total gain (loss) on investments, net	(504,388)	(331,857)

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The following tables present components of interest income recognized on our ~~MBS~~mortgage-backed and ~~GSE CRT~~other securities portfolio for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and 2020. GSE CRT interest income excludes coupon interest associated with embedded derivatives of $1.1 million and $5.8 million for the three and six months ended June 30, 2020, respectively, that was recorded as realized and unrealized credit derivative income (loss), net.2021.

For the three months ended ~~June 30, 2021~~March 31, 2022


$ in thousands	$ in thousands	Coupon Interest	Net (Premium Amortization)/Discount Accretion	Interest Income	$ in thousands	Coupon Interest	Net (Premium Amortization)/Discount Accretion	Interest Income
Agency RMBS	Agency RMBS	50,003	(9,450)	40,553	Agency RMBS	46,598	(6,928)	39,670

Non-Agency CMBS	Non-Agency CMBS	1,036	845	1,881	Non-Agency CMBS	737	503	1,240
Non-Agency RMBS	Non-Agency RMBS	467	(274)	193	Non-Agency RMBS	330	(151)	179

U.S. Treasury securities					U.S. Treasury securities	560	(16)	544
Other	Other	7	0	7	Other	4	—	4
Total	Total	51,513	(8,879)	42,634	Total	48,229	(6,592)	41,637

For the three months ended ~~June 30, 2020~~

$ in thousands Coupon
Interest Net (Premium
Amortization)/Discount
Accretion Interest
Income
Agency RMBS 1,561 (894) 667
Agency CMBS 1,827 (78) 1,749
Non-Agency CMBS 20,444 4,473 24,917
Non-Agency RMBS 1,524 (178) 1,346
GSE CRT 1,500 (536) 964
Other (15) 0 (15)
Total 26,841 2,787 29,628

~~For the six months ended June 30,~~March 31, 2021

$ in thousands Coupon
Interest Net (Premium
Amortization)/Discount
Accretion Interest
Income
Agency RMBS 99,558 (21,934) 77,624
Non-Agency CMBS 2,341 1,723 4,064
Non-Agency RMBS 1,091 (724) 367
Other 13 0 13
Total 103,003 (20,935) 82,068

~~Table of Contents~~

~~For the six months ended June 30, 2020~~


$ in thousands	$ in thousands	Coupon Interest	Net (Premium Amortization)/Discount Accretion	Interest Income	$ in thousands	Coupon Interest	Net (Premium Amortization)/Discount Accretion	Interest Income
Agency RMBS	Agency RMBS	107,439	(21,807)	85,632	Agency RMBS	49,555	(12,484)	37,071
Agency CMBS		35,822	(1,744)	34,078

Non-Agency CMBS	Non-Agency CMBS	62,662	9,531	72,193	Non-Agency CMBS	1,305	878	2,183
Non-Agency RMBS	Non-Agency RMBS	12,284	2,520	14,804	Non-Agency RMBS	624	(450)	174
GSE CRT		10,007	(2,286)	7,721

Other	Other	736	0	736	Other	6	—	6
Total	Total	228,950	(13,786)	215,164	Total	51,490	(12,056)	39,434

Note 5 - U.S. Treasury Securities

The following table presents the components of the carrying value of our U.S. Treasury securities, which are classified as trading securities, as of March 31, 2022. We did not hold any U.S. Treasury securities as of December 31, 2021.


$ in thousands						March 31, 2022
Principal balance						500,000
Unamortized premium						2,272
Amortized cost						502,272
Unrealized gains (losses), net						(19,827)
Fair value (1)						482,445

(1)Fair value includes $97.3 million maturing in 2027, $193.1 million maturing in 2029 and $192.1 million maturing in 2032.

Note 6 – Other Assets

The following table summarizes our other assets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021.


$ in thousands	$ in thousands	June 30, 2021	December 31, 2020	$ in thousands	March 31, 2022	December 31, 2021
Commercial loan, held-for-investment	Commercial loan, held-for-investment	20,822	23,098	Commercial loan, held-for-investment	23,391	23,515
Investments in unconsolidated ventures	Investments in unconsolidated ventures	13,936	16,408	Investments in unconsolidated ventures	4,854	12,476
Prepaid expenses and other assets	Prepaid expenses and other assets	703	1,657	Prepaid expenses and other assets	1,220	1,518
Total	Total	35,461	41,163	Total	29,465	37,509

In ~~March 2021,~~February 2022, we agreed to extend the contractual maturity of our commercial loan investment from February ~~2021~~2022 to ~~February 2022 at the request of the borrower.~~June 2022. The borrower continues to make current interest payments on the ~~loan and posted additional cash reserves in connection with the loan modification.~~loan. The loan had a principal balance of $23.9 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 and a weighted average coupon rate of ~~8.59%~~8.73% as of ~~June 30, 2021~~March 31, 2022 and ~~8.65%~~8.60% as of December 31, ~~2020.~~2021. We account for this investment using the fair value option. We recorded unrealized losses of $124,000 and $3.1 million on this loan in our condensed consolidated statements of operations during the three months ended March 31, 2022 and 2021, respectively.

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We have invested in unconsolidated ventures that are managed by an affiliate of our Manager. The unconsolidated ventures invest in our target assets. Refer to Note 1415 - "Commitments and Contingencies" for additional details regarding our commitments to these unconsolidated ventures.

~~Table of Contents~~

Note 67 – Borrowings

We ~~have historically financed~~finance the majority of our investment portfolio through repurchase ~~agreements and secured loans. We fully repaid our secured loans during the year ended December 31, 2020.~~agreements. The following tables summarize certain characteristics of our borrowings at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. Refer to Note 78 - "Collateral Positions" for collateral pledged and held under our repurchase agreements.

$ in thousands

June 30, 2021

$ in thousands

March 31, 2022

Weighted

Average

Weighted

Average

Remaining

Average

Remaining

Amount

Interest

Maturity

Amount

Interest

Maturity

Outstanding

Rate

(days)

Outstanding

Rate

(days)

Repurchase Agreements - Agency RMBS

7,851,204

0.10

Repurchase Agreements - Agency RMBS

5,349,388

0.38

Repurchase Agreements - U.S. Treasury securities

488,032

0.19

Total Borrowings

7,851,204

0.10

Total Borrowings

5,837,420

0.37

$ in thousands

December 31, 2020

$ in thousands

December 31, 2021

Weighted

Average

Weighted

Average

Remaining

Average

Remaining

Amount

Interest

Maturity

Amount

Interest

Maturity

Outstanding

Rate

(days)

Outstanding

Rate

(days)

Repurchase Agreements - Agency RMBS

7,228,699

0.21

Repurchase Agreements - Agency RMBS

6,987,834

0.14

Total Borrowings

7,228,699

0.21

Total Borrowings

6,987,834

0.14

Repurchase Agreements

In the first half of 2020, we experienced unprecedented market conditions as a result of the COVID-19 pandemic. We received an unusually high number of margin calls from our repurchase agreement counterparties during March 2020 following significant spread widening in both Agency and non-Agency securities. As a result, we were unable to meet margin calls and were not in compliance with all of the financial covenants of our repurchase agreements as of March 31, 2020. While certain of our repurchase agreement counterparties permitted our repurchase agreements to remain outstanding while we were not in compliance, other counterparties seized and sold securities that we had posted as collateral for our repurchase agreements. As of May 7, 2020, we repaid all of our repurchase agreements that may have been in default. Gains and losses associated with the termination of these repurchase agreements during the three and six months ended June 30, 2020 are reported as net gain (loss) on extinguishment of debt in our condensed consolidated statement of operations.

~~We resumed financing the purchase of Agency RMBS with repurchase agreements in July 2020. These~~Our repurchase agreements generally bear interest at a contractually agreed upon ~~rate and~~rate. Agency RMBS repurchase agreements generally have maturities ~~of approximately~~ranging from one to six months. U.S. Treasury securities repurchase agreements generally have maturities ranging from one day to one month. Repurchase agreements are accounted for as secured borrowings since we maintain effective control of the financed assets. The repurchase agreements are subject to certain financial covenants. We were in compliance with all of these covenants as of ~~June 30, 2021.~~

~~Secured Loans~~

~~During the year ended December~~March 31, ~~2020, IAS Services LLC, our former wholly-owned captive insurance subsidiary, fully repaid its outstanding secured loans from the Federal Home Loan Bank of Indianapolis ("FHLBI").~~2022.

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Note 78 - Collateral Positions

The following table summarizes the fair value of collateral that we pledged and held under our repurchase agreements, interest rate swaps, currency forward contracts and ~~to-be-announced securities forward contracts ("TBAs")~~TBAs as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. Refer to Note 2 - "Summary of Significant Accounting Policies" in this Form 10-Q and 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, ~~2020~~2021 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. U.S. Treasury securities collateral pledged is included in U.S. Treasury securities on our condensed consolidated balance sheets. Cash collateral pledged on centrally cleared interest rate swaps and currency forward contracts 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we did not recognize any non-cash collateral held on our condensed consolidated balance sheets.


$ in thousands	$ in thousands	As of		$ in thousands	As of
Collateral Pledged	Collateral Pledged	June 30, 2021	December 31, 2020	Collateral Pledged	March 31, 2022	December 31, 2021
Repurchase Agreements:	Repurchase Agreements:			Repurchase Agreements:
Agency RMBS	Agency RMBS	8,248,952	7,614,935	Agency RMBS	5,607,777	7,326,175
U.S. Treasury securities				U.S. Treasury securities	482,445	—
Cash	Cash	300	700	Cash	4,506	3,527
Total repurchase agreements collateral pledged	Total repurchase agreements collateral pledged	8,249,252	7,615,635	Total repurchase agreements collateral pledged	6,094,728	7,329,702
Interest Rate Swaps, Currency Forward Contracts and TBAs:
Derivative Instruments:				Derivative Instruments:

Cash	Cash	0	378	Cash	43,287	4,458
Restricted cash	Restricted cash	353,386	244,573	Restricted cash	245,809	219,918
Total interest rate swaps, currency forward contracts and TBAs collateral pledged		353,386	244,951
Total derivative instruments collateral pledged				Total derivative instruments collateral pledged	289,096	224,376

Total collateral pledged:	Total collateral pledged:			Total collateral pledged:
Agency RMBS	Agency RMBS	8,248,952	7,614,935	Agency RMBS	5,607,777	7,326,175
U.S. Treasury securities				U.S. Treasury securities	482,445	—
Cash	Cash	300	1,078	Cash	47,793	7,985
Restricted cash	Restricted cash	353,386	244,573	Restricted cash	245,809	219,918
Total collateral pledged	Total collateral pledged	8,602,638	7,860,586	Total collateral pledged	6,383,824	7,554,078

		As of			As of
Collateral Held	Collateral Held	June 30, 2021	December 31, 2020	Collateral Held	March 31, 2022	December 31, 2021
Repurchase Agreements:	Repurchase Agreements:			Repurchase Agreements:
Cash		0	1,916

Non-cash collateral	Non-cash collateral	10,829	4,226	Non-cash collateral	—	248
Total repurchase agreements collateral held	Total repurchase agreements collateral held	10,829	6,142	Total repurchase agreements collateral held	—	248
Interest Rate Swaps, Currency Forward Contracts and TBAs:
Derivative instruments:				Derivative instruments:
Cash	Cash	310	1,630	Cash	280	280

Total interest rate swaps, currency forward contracts and TBAs collateral held		310	1,630
Total derivative instruments collateral held				Total derivative instruments collateral held	280	280

Total collateral held:	Total collateral held:			Total collateral held:
Cash	Cash	310	3,546	Cash	280	280
Non-cash collateral	Non-cash collateral	10,829	4,226	Non-cash collateral	—	248
Total collateral held	Total collateral held	11,139	7,772	Total collateral held	280	528

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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.

~~Our~~The ratio of our total repurchase ~~agreement~~agreements collateral pledged ~~ratio (MBS pledged as collateral/amount outstanding)~~to our total repurchase agreements outstanding was ~~105%~~104% as of ~~June 30, 2021~~March 31, 2022 (December 31, ~~2020:~~2021: 105%).

Interest Rate Swaps

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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"). 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 and Currency Forward Contracts

Our TBAs and currency forward contracts provide for bilateral collateral pledging based on market value as determined by our counterparties. Collateral pledged with our TBA and currency forward 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 89 – Derivatives and Hedging Activities

The following table summarizes changes in the notional amount of our derivative instruments during ~~2021:~~2022.


$ in thousands	$ in thousands	Notional Amount as of December 31, 2020	Additions	Settlement, Termination, Expiration or Exercise	Notional Amount as of June 30, 2021	$ in thousands	Notional Amount as of December 31, 2021	Additions	Settlement, Termination, Expiration or Exercise	Notional Amount as of March 31, 2022
Interest Rate Swaps (1)		6,300,000	1,500,000	(500,000)	7,300,000
Interest Rate Swaptions		0	1,000,000	(1,000,000)	0
Interest Rate Swaps (1) (2)						Interest Rate Swaps (1) (2)	8,050,000	5,050,000	(4,000,000)	9,100,000

Currency Forward Contracts	Currency Forward Contracts	33,084	34,870	(49,934)	18,020	Currency Forward Contracts	13,596	14,187	(20,391)	7,392

TBA Purchase Contracts	TBA Purchase Contracts	1,700,000	13,825,000	(14,025,000)	1,500,000	TBA Purchase Contracts	1,600,000	10,050,000	(8,350,000)	3,300,000
TBA Sale Contracts	TBA Sale Contracts	0	(14,025,000)	14,025,000	0	TBA Sale Contracts	—	(10,150,000)	8,350,000	(1,800,000)
Total	Total	8,033,084	2,334,870	(1,549,934)	8,818,020	Total	9,663,596	4,964,187	(4,020,391)	10,607,392

(1)~~Notional amount as of June 30, 2021 excludes $1.3 billion of~~Does not include interest rate swaps with forward start ~~dates.~~dates with a notional amount of $1.3 billion as of March 31, 2022 and December 31, 2021.

(2)Notional amount as of March 31, 2022 includes $6.8 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $2.3 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, 2021 includes $6.3 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $1.8 billion of interest rate swaps whereby we pay interest at a floating rate and receive interest at a fixed rate.

Refer to Note 78 - "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 day 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 ~~variable-rate~~floating-rate amounts over the ~~agreed upon term~~life of the agreements without exchange of the underlying notional amount. To

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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 ("AOCI")~~AOCI before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed

~~Table of Contents~~

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 ~~$5.4~~$5.2 million ~~and~~ ~~$10.8 million~~ as a decrease ~~(June 30, 2020: $4.5 million and $14.6~~(March 31, 2021: $5.4 million as a decrease) to interest expense for the three ~~and six~~ months ended ~~June 30, 2021, respectively. We increased the amount of gains and losses reclassified as a decrease to interest expense during the~~ March 31, 2022.~~three and six months ended June 30, 2020~~ ~~by $2.7 million because it was probable that the original forecasted repurchase agreement transactions would not occur by the end of the originally specified time period~~. During the next 12 months, we estimate that ~~$21.2~~$19.0 million will be reclassified as a decrease to interest expense, repurchase agreements. As of ~~June 30, 2021, $41.3~~March 31, 2022, $24.9 million (December 31, ~~2020: $52.1~~2021: $30.1 million) of unrealized gains on discontinued cash flow hedges, net are still included in accumulated other comprehensive income and will be reclassified as a decrease to interest expense, repurchase agreements over a period of time through December 15, 2023.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had interest rate swaps whereby we pay interest at a fixed rate and receive floating interest based on ~~1-month LIBOR~~the secured overnight financing rate ("SOFR") with the following maturities outstanding, excluding interest rate swaps with forward start dates.


$ in thousands	$ in thousands	As of June 30, 2021						$ in thousands	As of March 31, 2022
Maturities	Maturities	Notional Amount	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity	Maturities	Notional Amount	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity

Less than 3 years								Less than 3 years	1,000,000	0.06	%	0.30	%	2.3
3 to 5 years	3 to 5 years	2,250,000	0.20	%	0.09	%	3.7	3 to 5 years	1,250,000	0.12	%	0.30	%	3.4
5 to 7 years	5 to 7 years	1,775,000	0.43	%	0.08	%	6.2	5 to 7 years	2,225,000	0.32	%	0.30	%	5.7
7 to 10 years	7 to 10 years	2,275,000	0.60	%	0.08	%	8.7	7 to 10 years	1,825,000	0.52	%	0.30	%	8.3

Greater than 10 years								Greater than 10 years	500,000	1.92	%	0.30	%	20.0
Total	Total	6,300,000	0.41	%	0.09	%	6.2	Total	6,800,000	0.42	%	0.30	%	6.5


$ in thousands	$ in thousands	As of December 31, 2020						$ in thousands	As of December 31, 2021
Maturities	Maturities	Notional Amount	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity	Maturities	Notional Amount	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity

Less than 3 years								Less than 3 years	1,000,000	0.06	%	0.05	%	2.6
3 to 5 years	3 to 5 years	2,250,000	0.20	%	0.15	%	4.2	3 to 5 years	1,250,000	0.12	%	0.05	%	3.6
5 to 7 years	5 to 7 years	1,775,000	0.43	%	0.15	%	6.7	5 to 7 years	2,225,000	0.32	%	0.05	%	5.9
7 to 10 years	7 to 10 years	2,275,000	0.60	%	0.15	%	9.2	7 to 10 years	1,825,000	0.52	%	0.05	%	8.6

Total	Total	6,300,000	0.41	%	0.15	%	6.7	Total	6,300,000	0.30	%	0.05	%	5.7

As of ~~June 30,~~March 31, 2022 and December 31, 2021, we held $1.3 billion notional amount of interest rate swaps with forward start dates that will receive floating interest based on ~~1-month LIBOR with~~SOFR. As of March 31, 2022, these interest rate swaps had a weighted average maturity of ~~21.2~~20.5 years (December 31, 2021: 20.8 years) and a weighted average fixed pay rate of ~~1.29%. We did not hold any interest rate swaps with forward start dates as of December~~0.99% (December 31, ~~2020.~~2021: 0.99%).

As of ~~June 30,~~March 31, 2022 and December 31, 2021, we had interest rate swaps whereby we pay floating interest based on ~~1-month LIBOR~~SOFR and receive interest at a fixed rate with the following maturities outstanding. ~~We did not hold any such interest rate swaps as~~


$ in thousands	As of March 31, 2022
Maturities	Notional Amount	Weighted Average Floating Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Years to Maturity
Less than 3 years	1,400,000	0.30	%	1.43	%	2.0
3 to 5 years	100,000	0.30	%	1.75	%	5.0
5 to 7 years	500,000	0.30	%	1.57	%	7.7

Greater than 10 years	300,000	0.30	%	1.83	%	30.0
Total	2,300,000	0.30	%	1.53	%	7.0

Table of ~~December 31, 2020.~~Contents

$ in thousands As of June 30, 2021
Maturities Notional Amount Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity
Less than 3 years 1,000,000 0.10 % 0.37 % 2.9
Total 1,000,000 0.10 % 0.37 % 2.9


$ in thousands	As of December 31, 2021
Maturities	Notional Amounts	Weighted Average Floating Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Years to Maturity
Less than 3 years	1,000,000	0.05	%	0.77	%	2.6

5 to 7 years	500,000	0.05	%	1.26	%	6.9
7 to 10 years	250,000	0.05	%	1.27	%	10.0

Total	1,750,000	0.05	%	0.98	%	4.9

Swaptions and Currency Forward Contracts

We periodically purchase interest rate swaptions to help mitigate the potential impact of increases or decreases in interest rates on the performance of our Agency RMBS portfolio (referred to as "convexity risk"). The interest rate swaptions provide us the option to enter into interest rate swap agreements for a predetermined notional amount, stated term and pay and receive interest rates in the future. The premium paid for interest rate swaptions is reported as a derivative asset in our condensed consolidated balance sheets. The premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk, if any. The difference between the premium and the fair value of the swaption is reported in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations. If an interest rate swaption expires unexercised, the loss on the interest rate swaption would equal the premium paid. If we sell or exercise an interest rate swaption, the realized gain or loss on the interest rate swaption would equal the difference between the cash or the fair value of the underlying interest rate swap received and the premium paid.

~~Table of Contents~~

We use 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. As of ~~June 30, 2021,~~March 31, 2022, we had ~~$18.0~~$7.4 million (December 31, ~~2020: $33.1~~2021: $13.6 million) of notional amount of currency forward contracts related to an investment in an unconsolidated venture denominated in Euro.

~~Credit Derivatives~~

Our GSE CRTs purchased prior to August 24, 2015 were accounted for as hybrid financial instruments consisting of a debt host contract and an embedded credit derivative. Embedded derivatives associated with GSE CRTs were recorded within mortgage-backed and credit risk transfer securities, at fair value, on the condensed consolidated balance sheets.

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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


$ in thousands	$ in thousands	As of June 30, 2021				$ in thousands	As of March 31, 2022
		Notional Amount	Implied Cost Basis	Implied Market Value	Net Carrying Value		Notional Amount	Implied Cost Basis	Implied Market Value	Net Carrying Value
TBA Purchase Contracts(1)	TBA Purchase Contracts(1)	1,500,000	1,547,465	1,551,445	3,980	TBA Purchase Contracts(1)	3,300,000	3,317,340	3,265,344	(51,996)

TBA Sale Contracts (2)						TBA Sale Contracts (2)	(1,800,000)	(1,767,945)	(1,753,313)	14,632
Net TBA Derivatives						Net TBA Derivatives	1,500,000	1,549,395	1,512,031	(37,364)

$ in thousands As of December 31, 2020
Notional Amount Implied Cost Basis Implied Market Value Net Carrying Value
TBA Purchase Contracts 1,700,000 1,772,211 1,782,104 9,893
(1)Net carrying value of TBA purchase contracts includes $1.2 million of derivative assets and $53.2 million of derivative liabilities.

(2)Net carrying value of TBA sale contracts includes $16.2 million of derivative assets and $1.6 million of derivative liabilities.

$ in thousands

As of December 31, 2021

Notional Amount

Implied Cost Basis

Implied Market Value

Net Carrying Value

TBA Purchase Contracts

1,600,000

1,636,906

1,633,955

(2,951)

Table of Contents

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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

$ in thousands
Derivative Assets Derivative Liabilities
As of June 30, 2021 As of December 31, 2020 As of June 30, 2021 As of December 31, 2020
Balance
Sheet Fair Value Fair Value Balance
Sheet Fair Value Fair Value
Interest Rate Swaps Asset 0 0 Interest Rate Swaps Liability 17,242 5,537
Currency Forward Contracts 437 111 Currency Forward Contracts 20 807
TBAs 3,980 9,893 TBAs 0 0
Total Derivative Assets 4,417 10,004 Total Derivative Liabilities 17,262 6,344

~~Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement~~

~~The table below presents the effect of our credit derivatives on the condensed consolidated statements of operations for the three and six months ended June 30, 2020.~~

$ in thousands Three months ended June 30, 2020
Derivative
not designated as
hedging instrument Realized gain (loss), net GSE CRT embedded derivative coupon interest Unrealized gain (loss), net Realized and unrealized credit derivative income (loss), net
GSE CRT Embedded Derivatives (16,414) 1,127 12,549 (2,738)

~~Table of Contents~~

$ in thousands Six months ended June 30, 2020
Derivative
not designated as
hedging instrument Realized gain (loss), net GSE CRT embedded derivative coupon interest Unrealized gain (loss), net Realized and unrealized credit derivative income (loss), net
GSE CRT Embedded Derivatives (14,131) 5,845 (27,504) (35,790)


Derivative Assets			Derivative Liabilities
	As of March 31, 2022	As of December 31, 2021		As of March 31, 2022	As of December 31, 2021
Balance Sheet	Fair Value	Fair Value	Balance Sheet	Fair Value	Fair Value
Interest Rate Swaps Asset	—	—	Interest Rate Swaps Liability	22,805	11,405
Currency Forward Contracts	237	270	Currency Forward Contracts	7	—
TBAs	17,437	—	TBAs	54,801	2,951
Total Derivative Assets	17,674	270	Total Derivative Liabilities	77,613	14,356

The following tables ~~summarizes~~summarize the effect of interest rate swaps, interest rate swaptions, 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, 2021~~March 31, 2022 and ~~2020:~~2021.


$ in thousands	$ in thousands	Three Months Ended June 30, 2021				$ in thousands	Three Months Ended March 31, 2022
Derivative not designated as hedging instrument	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	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	Interest Rate Swaps	(166,365)	(4,572)	(32,786)	(203,723)	Interest Rate Swaps	343,309	1,284	(11,399)	333,194

Currency Forward Contracts	Currency Forward Contracts	(13)	0	(142)	(155)	Currency Forward Contracts	193	—	(41)	152
TBAs	TBAs	10,431	0	7,163	17,594	TBAs	(60,073)	—	(34,413)	(94,486)
Total	Total	(155,947)	(4,572)	(25,765)	(186,284)	Total	283,429	1,284	(45,853)	238,860

$ in thousands Three Months Ended June 30, 2020
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
Currency Forward Contracts (138) 0 (205) (343)
Total (138) 0 (205) (343)

$ in thousands Six Months Ended June 30, 2021
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 161,162 (9,121) (11,705) 140,336
Interest Rate Swaptions (553) 0 0 (553)
Currency Forward Contracts (552) 0 1,113 561
TBAs (33,754) 0 (5,913) (39,667)
Total 126,303 (9,121) (16,505) 100,677


$ in thousands	$ in thousands	Six Months Ended June 30, 2020				$ in thousands	Three Months Ended March 31, 2021
Derivative not designated as hedging instrument	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	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	Interest Rate Swaps	(904,704)	11,924	(18,532)	(911,312)	Interest Rate Swaps	327,527	(4,549)	21,081	344,059

Interest Rate Swaptions						Interest Rate Swaptions	(553)	—	—	(553)
Currency Forward Contracts	Currency Forward Contracts	346	0	(156)	190	Currency Forward Contracts	(539)	—	1,255	716

TBAs						TBAs	(44,185)	—	(13,076)	(57,261)
Total	Total	(904,358)	11,924	(18,688)	(911,122)	Total	282,250	(4,549)	9,260	286,961

~~Table of Contents~~

Note 910 – 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 ~~agreements~~arrangements (or similar agreements) and can potentially be offset on our condensed consolidated balance sheets at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The daily variation margin payment for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral. ~~As of June 30, 2021, our~~Our derivative liability of ~~$17.2~~$22.8 million at March 31, 2022 (December 31, ~~2020: derivative~~2021: liability of ~~$5.5~~$11.4 million) related to centrally cleared interest rate swaps is not included in the table below as a result of this characterization of daily variation margin.

Table of Contents

As of ~~June 30, 2021~~March 31, 2022


					Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets							Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets
$ in thousands	$ 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	$ 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	Assets							Assets
Derivatives (1) (2)	Derivatives (1) (2)	4,417	0	4,417	(20)	(310)	4,087	Derivatives (1) (2)	17,674	—	17,674	(17,674)	—	—
Total Assets	Total Assets	4,417	0	4,417	(20)	(310)	4,087	Total Assets	17,674	—	17,674	(17,674)	—	—

Liabilities	Liabilities							Liabilities
Derivatives (1) (2)	Derivatives (1) (2)	(20)	0	(20)	20	0	0	Derivatives (1) (2)	(54,808)	—	(54,808)	17,674	37,017	(117)
Repurchase Agreements (3)	Repurchase Agreements (3)	(7,851,204)	0	(7,851,204)	7,851,204	0	0	Repurchase Agreements (3)	(5,837,420)	—	(5,837,420)	5,837,420	—	—
Total Liabilities	Total Liabilities	(7,851,224)	0	(7,851,224)	7,851,224	0	0	Total Liabilities	(5,892,228)	—	(5,892,228)	5,855,094	37,017	(117)

As of December 31, ~~2020~~2021


					Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets							Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets
$ in thousands	$ 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	$ 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	Assets							Assets
Derivatives (1) (2)	Derivatives (1) (2)	10,004	0	10,004	(111)	(1,630)	8,263	Derivatives (1) (2)	270	—	270	—	(270)	—
Total Assets	Total Assets	10,004	0	10,004	(111)	(1,630)	8,263	Total Assets	270	—	270	—	(270)	—

Liabilities	Liabilities							Liabilities
Derivatives (1) (2)	Derivatives (1) (2)	(807)	0	(807)	111	610	(86)	Derivatives (1) (2)	(2,951)	—	(2,951)	—	2,951	—
Repurchase Agreements (3)	Repurchase Agreements (3)	(7,228,699)	0	(7,228,699)	7,228,699	0	0	Repurchase Agreements (3)	(6,987,834)	—	(6,987,834)	6,987,834	—	—
Total Liabilities	Total Liabilities	(7,229,506)	0	(7,229,506)	7,228,810	610	(86)	Total Liabilities	(6,990,785)	—	(6,990,785)	6,987,834	2,951	—

(1)Amounts represent derivative assets and derivative liabilities which could potentially be offset against other derivative assets, derivative liabilities and cash collateral pledged or received.

(2)Cash collateral pledged by us on our ~~currency forward contracts, TBAs and centrally cleared interest rate swaps~~derivatives was ~~$353.4~~$289.1 million and ~~$245.0~~$224.4 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Cash collateral pledged on our centrally cleared interest rate swaps is settled against the fair value of these swaps and is therefore excluded from the tables above. We held cash collateral on our derivatives of ~~$310,000 and $1.6 million at June 30, 2021~~$280,000 as of March 31, 2022 and December 31, ~~2020, respectively.~~2021.

(3)The fair value of securities pledged against our borrowings under repurchase agreements was ~~$8.2~~$6.1 billion and ~~$7.6~~$7.3 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. We pledged cash collateral of ~~$300,000~~$4.5 million and ~~$700,000 under repurchase agreements as of June 30, 2021 and December 31, 2020, respectively. We held cash collateral of $1.9~~$3.5 million under repurchase agreements as of March 31, 2022 and December 31, ~~2020.~~2021, respectively. We ~~did 0t hold~~held no cash collateral under repurchase agreements as of ~~June 30,~~March 31, 2022 or December 31, 2021.

2018

Table of Contents

Note 1011 – 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.


		June 30, 2021						March 31, 2022
		Fair Value Measurements Using:						Fair Value Measurements Using:
$ in thousands	$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient (2)	Total at Fair Value	$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient (4)	Total at Fair Value
Assets:	Assets:						Assets:
Mortgage-backed securities (1)	Mortgage-backed securities (1)	0	8,730,663	0	—	8,730,663	Mortgage-backed securities (1)	—	5,992,494	—	—	5,992,494

U.S. Treasury securities (2)							U.S. Treasury securities (2)	—	482,445	—	—	482,445
Derivative assets	Derivative assets	0	4,417	0	—	4,417	Derivative assets	—	17,674	—	—	17,674
Other assets (3)	Other assets (3)	0	0	20,822	13,936	34,758	Other assets (3)	—	—	23,391	4,854	28,245
Total assets	Total assets	0	8,735,080	20,822	13,936	8,769,838	Total assets	—	6,492,613	23,391	4,854	6,520,858
Liabilities:	Liabilities:						Liabilities:
Derivative liabilities	Derivative liabilities	0	17,262	0	—	17,262	Derivative liabilities	—	77,613	—	—	77,613
Total liabilities	Total liabilities	0	17,262	0	—	17,262	Total liabilities	—	77,613	—	—	77,613


		December 31, 2020						December 31, 2021
		Fair Value Measurements Using:						Fair Value Measurements Using:
$ in thousands	$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient (2)	Total at Fair Value	$ in thousands	Level 1	Level 2	Level 3	NAV as a practical expedient (4)	Total at Fair Value
Assets:	Assets:						Assets:
Mortgage-backed securities (1)	Mortgage-backed securities (1)	0	8,172,182	0	—	8,172,182	Mortgage-backed securities (1)	—	7,804,259	—	—	7,804,259
Derivative assets	Derivative assets	0	10,004	0	—	10,004	Derivative assets	—	270	—	—	270
Other assets (3)	Other assets (3)	0	0	23,098	16,408	39,506	Other assets (3)	—	—	23,515	12,476	35,991
Total assets	Total assets	0	8,182,186	23,098	16,408	8,221,692	Total assets	—	7,804,529	23,515	12,476	7,840,520
Liabilities:	Liabilities:						Liabilities:
Derivative liabilities	Derivative liabilities	0	6,344	0	—	6,344	Derivative liabilities	—	14,356	—	—	14,356
Total liabilities	Total liabilities	0	6,344	0	—	6,344	Total liabilities	—	14,356	—	—	14,356

(1)For more detail about the fair value of our MBS, refer to Note 4 - "Mortgage-Backed ~~and Credit Risk Transfer~~ Securities."

(2)For more detail about the fair value of our U.S. Treasury securities, refer to Note 5 - "U.S. Treasury Securities".

(3)Includes $23.4 million and $23.5 million of a commercial loan as of March 31, 2022 and December 31, 2021, respectively. We elected the fair value option for our commercial loan investment as of January 1, 2020 and valued the loan based on a third party appraisal as of March 31, 2022 and December 31, 2021.

(4)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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, both of the ~~weighted average remaining term of our investments in~~ unconsolidated ventures ~~was 1.2 years~~were in liquidation and ~~1.5 years, respectively.~~plan to sell or settle their remaining investments as expeditiously as possible.

~~(3)Includes $20.8 million and $23.1 million of a commercial loan as of June 30, 2021 and December 31, 2020, respectively. We value the loan based on a third party appraisal.~~

2119

Table of Contents

The following table shows a reconciliation of the beginning and ending fair value measurements of our ~~GSE CRT embedded derivatives,~~commercial loan investment, which we have valued utilizing Level 3 ~~inputs:~~inputs.

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2020 2020
Beginning balance (29,772) 10,281
Sales and settlements 16,414 14,131
Total net credit derivative gains (losses) included in net income:
Realized credit derivative gains (losses), net (16,414) (14,131)
Unrealized credit derivative gains (losses), net (1)
12,549 (27,504)
Ending balance (17,223) (17,223)


	Three Months Ended March 31,
$ in thousands	2022	2021
Beginning balance	23,515	23,098



Unrealized gains (losses)	(124)	(3,098)
Ending balance	23,391	20,000

~~(1)~~Includes $4.8 million and $17.6 million for the three and six months ended June 30, 2020, respectively, of unrealized losses attributable to GSE CRT embedded derivatives that were still held as of June 30, 2020.

~~The following table shows a reconciliation of the beginning and ending fair value measurements of our loan participation interest, which we have valued utilizing Level 3 inputs:~~

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2020 2020
Beginning balance 21,577 44,654
Repayments 0 (19,269)
Sales (21,577) (21,577)
Total net gains and losses included in net income:
Realized losses (3,808) (3,808)
Net unrealized gains (losses) 3,808 0
Ending balance 0 0

~~Realized and unrealized~~Unrealized gains and losses on our commercial loan ~~participation interest were~~investment are included in gain (loss) on investments, net in our condensed consolidated statements of operations.

The following table ~~shows a reconciliation of the beginning balance of our commercial loan and ending balance at fair value, which we have valued utilizing Level 3 inputs:~~

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2021 2020 2021 2020
Beginning balance 20,000 22,577 23,098 24,055
Cumulative effect of adoption of new accounting principle 0 0 0 342
Repayments 0 0 0 (136)
Total net unrealized gains (losses) included in net income:
Unrealized gains (losses) 822 (785) (2,276) (2,469)
Ending balance 20,822 21,792 20,822 21,792

Unrealized gains and losses on our commercial loan are included in gain (loss) on investments, net in our condensed consolidated statements of operations. We elected the fair value option for our commercial loan on January 1, 2020 when we implemented the new accounting guidance for how entities report credit losses for assets measured at amortized cost.

~~The following table~~ summarizes the significant unobservable input used in the fair value measurement of our commercial ~~loan:~~loan.

Fair Value at

Valuation

Unobservable

Fair Value at

Valuation

Unobservable

$ in thousands

June 30, 2021

Technique

Input

Rate

$ in thousands

March 31, 2022

Technique

Input

Rate

Commercial Loan

20,822

Discounted Cash Flow

Discount rate

30.4

Commercial Loan

23,391

Discounted Cash Flow

Discount rate

18.5

Fair Value at Valuation Unobservable
$ in thousands December 31, 2020 Technique Input Rate
Commercial Loan 23,098 Discounted Cash Flow Discount rate 29.9 %

~~Table of Contents~~

Fair Value at

Valuation

Unobservable

$ in thousands

December 31, 2021

Technique

Input

Rate

Commercial Loan

23,515

Discounted Cash Flow

Discount rate

18.8

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 at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021.


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
$ in thousands	$ in thousands	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value	$ in thousands	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Financial Liabilities	Financial Liabilities					Financial Liabilities
Repurchase agreements	Repurchase agreements	7,851,204	7,850,862	7,228,699	7,228,719	Repurchase agreements	5,837,420	5,836,454	6,987,834	6,987,806
Total	Total	7,851,204	7,850,862	7,228,699	7,228,719	Total	5,837,420	5,836,454	6,987,834	6,987,806

The following describes our methods for estimating the fair value for financial instruments not carried at fair value on the condensed consolidated balance sheets.

•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 1112 – 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. During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, we reimbursed our Manager ~~$261,000 and $559,000 (June 30, 2020: $286,000 and $558,000)~~$413,000 (March 31, 2021: $298,000) for costs of support ~~personnel, respectively.~~

We invested $1.9 million in money market or mutual funds managed by affiliates of our Manager as of December 31, 2020. The investments are reported as cash and cash equivalents on our condensed consolidated balance sheets as they are highly liquid and have original or remaining maturities of three months or less when purchased. We did not have any investments in money market of mutual funds managed by affiliates of our Manager as of June 30, 2021.personnel.

Management Fee

~~Our management~~We pay our Manager a fee is 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.

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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 for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2021 2020 2021 2020
Incurred costs, prepaid or expensed 1,696 2,950 2,853 5,164
Incurred costs, charged against equity as a cost of raising capital 315 165 392 227
Total incurred costs, originally paid by our Manager 2,011 3,115 3,245 5,391


	Three Months Ended March 31,
$ in thousands	2022	2021
Incurred costs, prepaid or expensed	1,337	1,157
Incurred costs, charged against equity as a cost of raising capital	58	77
Total incurred costs, originally paid by our Manager	1,395	1,234

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Note 1213 – Stockholders’ Equity

Preferred Stock

On June 16, 2021 we redeemed all issued and outstanding shares of our Series A Preferred Stock for $140.0 million plus accrued and unpaid dividends. The cash redemption price for each share of Series A Preferred Stock was $25.00. The excess of the consideration transferred over carrying value is accounted for as a deemed dividend and resulted in a reduction of $4.7 million in net income (loss) attributable to common stockholders during the three and six months ended June 30, 2021. Prior to redemption, holders of our Series A Preferred Stock were 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. Dividends were cumulative and payable quarterly in arrears.

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 equal to three-month LIBOR plus a spread of 5.18% of the $25.00 liquidation preference per annum. 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 equal to three-month LIBOR plus a spread of 5.289% of the $25.00 liquidation preference per annum. 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.

As of ~~June 30, 2021,~~March 31, 2022, we may sell up to 5,500,000 shares of our preferred stock from time to time in at-the-market or privately negotiated transactions under an equity distribution agreement with a placement agent. These shares are registered with the SEC under our shelf registration statement (as amended and/or supplemented). We have not sold any shares of preferred stock under equity distribution agreements.

Common Stock

In February 2021, we completed a public offering of 27,600,000 shares of common stock at the price of $3.75 per share. Total net proceeds were approximately $103.1 million after deducting offering expenses.

In June 2021, we completed a public offering of 43,125,000 shares of common stock at the price of $3.39 per share. Total net proceeds were approximately $145.9 million after deducting offering expenses.

As of ~~June 30, 2021,~~March 31, 2022, we may sell up to ~~22,060,000~~56,865,980 shares of our common stock from time to time in at-the-market or privately negotiated transactions under anour equity distribution agreement with a placement ~~agent.~~agents. These shares are registered with the SEC under our shelf registration statement (as amended and/or supplemented). ~~During~~We did not sell any shares of common stock under our equity distribution agreement during the ~~six~~three months ended ~~June 30,~~March 31, 2022. During three months ended March 31, 2021, we sold ~~15,500,000~~15,550,000 shares of common stock under ~~our~~an equity distribution agreement for proceeds of $57.8 million, net of approximately $831,000 in commissions and fees. ~~We did 0t sell any shares of common stock under equity distribution agreements during the three months ended June 30, 2021 or the three and six months ended June 30, 2020.~~

In May 2021, we granted 127,115 restricted shares of common stock to our independent directors. The restricted shares will become unrestricted shares of common stock on the first anniversary of the grant date unless forfeited, subject to certain conditions that accelerate vesting.

Share Repurchase Program

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we did 0tnot repurchase any shares of our common stock. As of ~~June 30, 2021,~~March 31, 2022, we had authority to purchase 18,163,982 shares of our common stock through our 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, 2021~~March 31, 2022 and ~~2020.~~2021. The tables exclude gains and losses on MBS ~~and GSE CRTs~~ that are accounted for under the fair value option.


		Three Months Ended June 30, 2021					Three Months Ended March 31, 2022
$ in thousands	$ in thousands	Equity method investments	Available-for-sale securities	Derivatives and hedging	Total	$ in thousands	Equity method investments	Available-for-sale securities	Derivatives and hedging	Total
Total other comprehensive income (loss)	Total other comprehensive income (loss)					Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net		—	1,155	—	1,155
Unrealized gain (loss) on mortgage-backed securities, net						Unrealized gain (loss) on mortgage-backed securities, net	—	(2,421)	—	(2,421)

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	—	—	(5,429)	(5,429)	Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	—	—	(5,196)	(5,196)
Currency translation adjustments on investment in unconsolidated venture	Currency translation adjustments on investment in unconsolidated venture	(632)	—	—	(632)	Currency translation adjustments on investment in unconsolidated venture	(200)	—	—	(200)
Total other comprehensive income (loss)	Total other comprehensive income (loss)	(632)	1,155	(5,429)	(4,906)	Total other comprehensive income (loss)	(200)	(2,421)	(5,196)	(7,817)

AOCI balance at beginning of period	AOCI balance at beginning of period	1,108	6,974	46,745	54,827	AOCI balance at beginning of period	424	6,749	30,113	37,286
Total other comprehensive income (loss)	Total other comprehensive income (loss)	(632)	1,155	(5,429)	(4,906)	Total other comprehensive income (loss)	(200)	(2,421)	(5,196)	(7,817)

AOCI balance at end of period	AOCI balance at end of period	476	8,129	41,316	49,921	AOCI balance at end of period	224	4,328	24,917	29,469

Three Months Ended June 30, 2020
$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total
Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — (53,271) — (53,271)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net — 34,782 — 34,782
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — (4,503) (4,503)
Currency translation adjustments on investment in unconsolidated venture (388) — — (388)
Total other comprehensive income (loss) (388) (18,489) (4,503) (23,380)
AOCI balance at beginning of period (165) 64,053 65,840 129,728
Total other comprehensive income (loss) (388) (18,489) (4,503) (23,380)
AOCI balance at end of period (553) 45,564 61,337 106,348

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Six Months Ended June 30, 2021
$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total
Total other comprehensive income/(loss)
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — 2,136 — 2,136
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — (10,797) (10,797)
Currency translation adjustments on investment in unconsolidated venture (23) — — (23)
Total other comprehensive income/(loss) (23) 2,136 (10,797) (8,684)
AOCI balance at beginning of period 499 5,993 52,113 58,605
Total other comprehensive income/(loss) (23) 2,136 (10,797) (8,684)
AOCI balance at end of period 476 8,129 41,316 49,921


		Six Months Ended June 30, 2020					Three Months Ended March 31, 2021
$ in thousands	$ in thousands	Equity method investments	Available-for-sale securities	Derivatives and hedging	Total	$ in thousands	Equity method investments	Available-for-sale securities	Derivatives and hedging	Total
Total other comprehensive income/(loss)
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net		—	(239,876)	—	(239,876)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net		—	71,739	—	71,739
Total other comprehensive income (loss)						Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed securities, net						Unrealized gain (loss) on mortgage-backed securities, net	—	981	—	981

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	—	—	(14,570)	(14,570)	Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense	—	—	(5,368)	(5,368)
Currency translation adjustments on investment in unconsolidated venture	Currency translation adjustments on investment in unconsolidated venture	92	—	—	92	Currency translation adjustments on investment in unconsolidated venture	609	—	—	609
Total other comprehensive income/(loss)		92	(168,137)	(14,570)	(182,615)
Total other comprehensive income (loss)						Total other comprehensive income (loss)	609	981	(5,368)	(3,778)

AOCI balance at beginning of period	AOCI balance at beginning of period	(645)	213,701	75,907	288,963	AOCI balance at beginning of period	499	5,993	52,113	58,605
Total other comprehensive income/(loss)		92	(168,137)	(14,570)	(182,615)
Total other comprehensive income (loss)						Total other comprehensive income (loss)	609	981	(5,368)	(3,778)

AOCI balance at end of period	AOCI balance at end of period	(553)	45,564	61,337	106,348	AOCI balance at end of period	1,108	6,974	46,745	54,827

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.

Dividends

The table below summarizes the dividends we declared during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021.

$ in thousands, except per share amounts

Dividends Declared

$ in thousands, except per share amounts

Dividends Declared

Series A Preferred Stock

Per Share

In Aggregate

Date of Payment

Series A Preferred Stock

Per Share

In Aggregate

Date of Payment

2021 ~~(1)~~

February 19, 2021

0.4844

2,713

April 26, 2021

February 19, 2021

0.4844

2,713

April 26, 2021

2020

June 17, 2020

0.4844

2,712

July 27, 2020

March 17, 2020

0.4844

2,713

May 22, 2020

~~(1)On June 16, 2021, we paid a final dividend of $0.2691 per share ($1.5 million in aggregate) in connection with the redemption of our Series A Preferred Stock.~~

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$ in thousands, except per share amounts

Dividends Declared

$ in thousands, except per share amounts

Dividends Declared

Series B Preferred Stock

Per Share

In Aggregate

Date of Payment

Series B Preferred Stock

Per Share

In Aggregate

Date of Payment

2022

February 16, 2022

0.4844

3,003

March 28, 2022

2021

May 4, 2021

0.4844

3,004

June 28, 2021

February 19, 2021

0.4844

3,003

March 29, 2021

February 19, 2021

0.4844

3,003

March 29, 2021

2020

May 9, 2020

0.4844

3,004

June 29, 2020

February 18, 2020

0.4844

3,003

May 22, 2020

$ in thousands, except per share amounts

Dividends Declared

$ in thousands, except per share amounts

Dividends Declared

Series C Preferred Stock

Per Share

In Aggregate

Date of Payment

Series C Preferred Stock

Per Share

In Aggregate

Date of Payment

2022

February 16, 2022

0.46875

5,391

March 28, 2022

2021

May 4, 2021

0.46875

5,390

June 28, 2021

February 19, 2021

0.46875

5,391

March 29, 2021

February 19, 2021

0.46875

5,391

March 29, 2021

2020

May 9, 2020

0.46875

5,390

June 29, 2020

February 18, 2020

0.46875

5,391

May 22, 2020

$ in thousands, except per share amounts

Dividends Declared

$ in thousands, except per share amounts

Dividends Declared

Common Stock

Per Share

In Aggregate

Date of Payment

Common Stock

Per Share

In Aggregate

Date of Payment

2022

March 28, 2022

0.09

29,693

April 27, 2022

2021

June 23, 2021

0.09

26,071

July 27, 2021

March 26, 2021

0.09

22,176

April 27, 2021

March 26, 2021

0.09

22,176

April 27, 2021

2020

June 17, 2020

0.02

3,626

July 28, 2020

March 17, 2020

0.50

82,483

June 30, 2020

On May 9, 2020, our Board of Directors approved payment of our common stock dividend that was declared on March 17, 2020 in a combination of cash and shares of our common stock. Stockholders had the opportunity to elect payment of the dividend all in cash or all in common shares, subject to a limit of 10% or approximately $8.2 million of cash in the aggregate (excluding any cash paid in lieu of issuing fractional shares). On June 30, 2020, we paid the dividend through the issuance of 16,338,511 shares of common stock and the payment of approximately $8.2 million in cash. The number of shares included in the dividend was calculated based on the $4.5435 volume weighted average trading price of our common stock on the New York Stock Exchange on June 17, 18 and 19, 2020.

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Note 1314 – Earnings (Loss) per Common Share

Earnings (loss) per share for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ is computed as ~~follows:~~follows.


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
In thousands, except per share amounts	In thousands, except per share amounts	2021	2020	2021	2020	In thousands, except per share amounts	2022	2021
Numerator (Income)	Numerator (Income)					Numerator (Income)
Basic Earnings:	Basic Earnings:					Basic Earnings:
Net income (loss) available to common stockholders	Net income (loss) available to common stockholders	(88,340)	(299,945)	(108,722)	(1,927,244)	Net income (loss) available to common stockholders	(236,816)	(20,382)

Denominator (Weighted Average Shares)	Denominator (Weighted Average Shares)					Denominator (Weighted Average Shares)
Basic Earnings:	Basic Earnings:					Basic Earnings:
Shares available to common stockholders	Shares available to common stockholders	260,140	166,943	242,147	161,857	Shares available to common stockholders	329,850	223,955

Dilutive Shares	Dilutive Shares	260,140	166,943	242,147	161,857	Dilutive Shares	329,850	223,955
Net income (loss) per share:
Earnings (loss) per share:						Earnings (loss) per share:
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders					Net income (loss) attributable to common stockholders
Basic	Basic	(0.34)	(1.80)	(0.45)	(11.91)	Basic	(0.72)	(0.09)
Diluted	Diluted	(0.34)	(1.80)	(0.45)	(11.91)	Diluted	(0.72)	(0.09)

The following potential weighted average common shares were excluded from diluted earnings per share for ~~the~~ three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 as the effect would be antidilutive: ~~20,826 and 17,225~~15,004 for restricted stock awards ~~respectively (June 30, 2020: 10,672 and 11,366~~(12,385 for restricted stock awards ~~respectively)~~for three months ended March 31, 2021).

Note 1415 – 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, 2021~~March 31, 2022 are discussed below.

As discussed in Note 56 - ~~"Other Assets"~~“Other Assets”, we have invested in unconsolidated ventures that are sponsored by an affiliate of our Manager. The unconsolidated ventures are structured as partnerships, and we ~~invest~~invested in the partnerships as a limited partner. ~~The entities are structured such that capital commitments are to be drawn down over the life~~Both of the ~~partnership~~unconsolidated ventures are in liquidation and plan to sell or settle their remaining investments as ~~investment opportunities~~

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expeditiously as possible. Until the ventures complete their liquidation, we are ~~identified. As of June 30, 2021 and December 31, 2020, our undrawn~~committed to fund $6.5 million, in additional capital ~~and purchase commitments were $6.7 million and $6.8 million, respectively.~~to cover future expenses should they occur.

Note 1516 – Subsequent Events

Dividends

We declared the following dividends on ~~August~~May 3, ~~2021:~~2022: a Series B Preferred Stock dividend of $0.4844 per share payable on ~~September~~June 27, ~~2021~~2022 to our stockholders of record as of ~~September~~June 5, ~~2021~~2022 and a Series C Preferred Stock dividend of $0.46875 per share payable on ~~September~~June 27, ~~2021~~2022 to our stockholders of record as of ~~September~~June 5, 2022.

Preferred Stock Repurchase Plan

On May 3, 2022, our Board of Directors approved a repurchase plan for our preferred stock. Under the terms of the plan, we are authorized to repurchase up to 3,000,000 shares of our Series B Preferred Stock and 5,000,000 shares of our Series C Preferred Stock.

Reverse Stock Split

On May 3, 2022, our Board of Directors approved a one-for-ten reverse stock split of outstanding shares of our common stock. We expect the reverse stock split will be effective following the close of business on June 3, 2022 at which time every ten issued and outstanding shares of our common stock will convert into one share of common stock. Cash will be paid in lieu of fractional shares. The following table presents pro forma earnings (loss) per common share as if the one-for-ten reverse stock split had been given retroactive recognition in our financial statements for the three months ended March 31, 2022 and 2021.


Pro Forma Computation of Earnings (Loss) Per Common Share Assuming a One-for-Ten Reverse Stock Split
	Three Months Ended March 31,
In thousands, except per share amounts	2022	2021
Numerator (Income)
Basic Earnings:
Net income (loss) available to common stockholders	(236,816)	(20,382)

Denominator (Weighted Average Shares)
Basic Earnings:
Shares available to common stockholders	32,985	22,396
Dilutive Shares	32,985	22,396
Pro forma earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic	(7.18)	(0.91)
Diluted	(7.18)	(0.91)

The following potential weighted average common shares were excluded from pro forma diluted earnings per share for three months ended March 31, 2022 as the effect would be antidilutive: 1,500 for restricted stock awards (1,238 for restricted stock awards for three months ended March 31, 2021).

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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 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 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 and objectives. 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:

•~~ongoing spread and~~the economic and operational impact of the COVID-19 pandemic, including but not limited to, the impact on the value, volatility, availability, financing and liquidity of ~~mortgage~~target assets;

•our business and investment strategy;

•our investment portfolio and expected investments;

•our projected operating results;

•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 in response to the COVID-19 pandemic, mortgage loan forbearance and modification programs, interest rate fluctuations, increases in inflation, actions and initiatives of foreign governmental agencies and central banks, 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;

•the availability of financing sources, including our ability to obtain additional financing arrangements and the terms of such arrangements;

•financing and advance rates for our target assets;

•changes to our expected leverage;

•our expected book value per common share;

•our intention and ability to pay dividends;

•interest rate mismatches between our target assets and our borrowings used to fund such investments;

•the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;

•our ability to maintain sufficient liquidity to meet our short-term liquidity needs;

•changes in the credit rating of the U.S. government;

•changes in interest rates and interest rate spreads and the market value of our target assets;

•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;

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•disruption of our information technology systems;

•the impact of potential data security breaches or other cyber-attacks or other disruptions;

•the effects of hedging instruments on our target assets;

•rates of default or decreased recovery rates on our target assets;

•modifications to whole loans or loans underlying securities;

•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;

•counterparty defaults;

•compliance with financial covenants in our financing arrangements;

•changes in governmental regulations, 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 Investment Company Act of 1940, as amended (the "1940 Act");

•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 market price and trading volume of our capital stock;

•the availability of qualified personnel from our Manager and our Manager's continued ability to find and retain such personnel;

•the relationship with our Manager;

•estimates relating to taxable income and our ability to continue to make distributions to our stockholders in the future;

•estimates relating to fair value of our target assets and ~~credit loss reserves;~~interest income recognition;

•our understanding of our competition;

•changes to generally accepted accounting principles in the United States of America ("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 ~~"Risk Factors,"~~ "Management’s Discussion and Analysis of Financial Condition and Results of Operations" ~~and "Business."~~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. To achieve this objective, we currently invest in the following:

•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");

•To-be-announced securities forward contracts ("TBAs") to purchase Agency RMBS;

•~~Commercial~~A commercial mortgage ~~loans; and~~loan;

•Other real estate-related financing ~~arrangements.~~

~~We have also historically invested in:~~

•~~CMBS that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively "Agency CMBS");~~

•~~Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");~~arrangements; and

•~~Residential mortgage loans.~~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 Invesco Advisers, Inc. (our "Manager"), an indirect wholly-owned subsidiary of Invesco Ltd. ("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 rate spread premiums, governmental policy initiatives, ~~monetary policy initiatives,~~ residential and commercial real estate prices, credit availability, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.

Financial conditions ~~eased once again~~tightened significantly during the ~~second~~first quarter of 2022 as ~~equities~~equity markets declined, credit spreads widened and ~~most credit sectors~~volatility increased in reaction to sharply higher price data and the potential disruption to supply chains brought on by the conflict in Ukraine and continued ~~to react favorably to an uptick~~COVID-19 lockdowns in ~~activity~~China. Interest rates were higher across the yield curve, with shorter dated maturities increasing more than longer dated maturities as the ~~economy continued~~Federal Reserve began to ~~reopen. In contrast, interest rates fell, reflecting~~remove monetary policy accommodations. Equity markets ended the ~~concerns around the potential impact of COVID-19 variants that have begun to emerge. Equities continued to build on their strong start to the year, with~~first quarter lower, as the S&P 500 ~~and~~lost 4.9% while the NASDAQ ~~gaining 8.2% and 9.5%, respectively.~~lost 9.1% since the end of 2021. The employment picture continued to improve during the quarter, as gains in nonfarm payrolls averaged ~~567,000~~562,000 per month, and the unemployment rate fell ~~slightly~~ from ~~6.0%~~3.9% to ~~5.9%~~3.6% at quarter-end. Consumer activity was mixed ~~during the quarter, as~~with consumer confidence measures ~~dipped,~~declining as the impact of higher prices took hold, while spending ~~increased~~ and retail sales numbers were relatively flat. With the rollout of vaccinations continuing, albeit at a slowing pace, we remain cautiously optimistic about near-term gains in economic activity, particularly given the amount of anticipated government stimulus.both increased modestly.

~~The yield curve flattened~~Interest rates rose during the ~~second~~first quarter as market expectations of additional aggressive increases to the Federal Funds target rate by the Federal Open Market Committee (“FOMC”) impacted shorter maturities and increases in inflation ~~fears were offset by concerns that an uptick in COVID-19 cases, exacerbated by more contagious variants, could upend~~expectations affected longer dated maturities. During the ~~recovery. The yield on the 10 year Treasury bond fell 27 basis points to 1.47%, while~~quarter, the yield on the 2 year Treasury note ~~rose 9~~increased 160 basis points to ~~0.25%. While the short end of~~2.34%, the yield ~~curve remains pinned close~~on the 5 year Treasury increased 120 basis points to ~~zero as~~2.46% and the ~~Federal Open Market Committee ("FOMC") targets~~yield on the ~~lower bound,~~10 year Treasury ended the ~~futures market has begun to price in increases to~~quarter at 2.34%, up 83 basis points. In March, the FOMC raised the Federal Funds target rate ~~beginning late next year.~~as it began its fight against inflation. Market expectations for further rate hikes increased dramatically, with pricing in the Federal Funds futures market reflecting as many as 10 additional hikes by the end of 2023. The consumer price index ("CPI") ~~increased sharply, ending the second quarter at 5.4%,~~hit a 40-year high of 8.5% during March, up from ~~2.6%~~7.0% at ~~the end of the first quarter, while the~~year-end. The CPI excluding food and energy ended the quarter at ~~4.5%~~6.5%, up from ~~1.6%~~5.5% last quarter. Commodity prices ~~also rose sharply~~gaped higher during the quarter, with West Texas Intermediate ~~("WTI")~~ crude recording a ~~24.9%~~56.2% increase and the Commodity Research Bureau ~~("CRB")~~ commodity index gaining ~~15.4%~~37.4%. ~~Breakeven~~Despite these price increases, breakeven rates on inflation-protected Treasuries ~~were little changed during~~reflected the ~~second quarter, as~~belief that the Federal Reserve will have success in reducing inflation below

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current levels. The inflation rate implied by 2 year U.S. Treasury inflation-protected securities ~~("TIPS") rose 5 basis points to 2.72%~~ended the quarter at 4.41% (up from 3.22% last quarter), while the 5 year breakeven rate ~~fell 10~~rose from 2.91% to 3.43% over the course of the quarter.

After posting their worst performance in nearly a decade in 2021, Agency RMBS underperformed significantly worse during the first quarter of 2022.Underperformance relative to Treasuries during the first quarter was approximately twice as bad as in 2021, with lower coupons lagging Treasuries by approximately 200 basis ~~points~~points. Increased interest rate volatility and elevated market expectations for more restrictive monetary policy were particularly harmful for low coupon 30 year Agency RMBS, which previously had benefited the most from the Federal Reserve’s initial response to ~~2.50%.~~the COVID-19 pandemic.In particular, the accelerated timeline for the tapering of net asset purchases and balance sheet normalization significantly disrupted the supply and demand dynamics in Agency RMBS, as the Federal Reserve signaled a notable decline in demand for the asset class in 2022. While prepayment speeds remained relatively elevated due to the strength of the housing market, premiums on specified pool Agency RMBS collapsed during the quarter as investor demand for prepayment protection disappeared as mortgage rates hit multi-year highs.Prepayment speeds should moderate in the months ahead, as sharply higher mortgage rates dampen refinancing activity. The dollar roll market for new production higher coupon TBAs continues to be attractive, as demand for par-priced paper outstrips current production. Overall, despite cheaper valuations, we remain cautious on the Agency RMBS sector, as heightened volatility and a worsening technical picture weighs on our outlook.

CMBS risk premiums ~~contracted~~increased in the ~~second~~first quarter ~~largely~~of 2022 due to ~~improving health trends together with supportive fiscal~~elevated geopolitical risks, higher inflation and ~~monetary policies. Amid~~increased interest rate volatility. Despite these concerns, the ~~recent vaccine rollout and progress towards controlling the pandemic, increased~~economy continued to show signs of improvement. This pick-up in economic activity has translated to ~~slowly~~ improving employment levels, increased commercial real estate ~~fundamentals.~~activity and continued property price appreciation. While commercial mortgage loan delinquencies remain elevated across many property types, they ~~have recently been declining overall.~~continue to decline from their post-pandemic peak levels. The lodging and retail sectors have experienced the highest level of loan delinquencies due to travel restrictions and a ~~sharp~~severe slowdown in activity. Office, multi-family and industrial property sectors continue to post relatively lower delinquency levels. Loans secured by office properties have benefited from long-term tenant leases and industrial warehouse properties have benefited from growing online shopping, as online retailers have demanded more space to support their fulfillment process. Despite increased vacancy rates among some multi-family properties located in central business districts, many properties have performed relatively well as renters have been aided by government support and generous forbearance practices.

~~While residential real estate fundamentals deteriorated significantly at~~The housing market staged a robust recovery following the onset of the COVID-19 pandemic, driven in part by low mortgage rates and tight ~~housing~~ supply ~~have driven a significant recovery.~~conditions. Demographic trends and changes in housing preferences shaped by the pandemic ~~led~~have contributed to ~~robust~~solid demand, especially for single family homes. This strength is reflected in rapid home price appreciation, which has ~~accelerated rapidly over~~only recently begun to moderate as mortgage rates have increased and affordability has declined. After reversing much of the ~~past year. Meanwhile,~~ credit ~~spreads on residential mortgage backed securities have largely reversed the~~spread widening that occurred in March ~~2020.~~

~~Nevertheless, many individual homeowners~~2020, residential mortgage-backed securities valuations have been ~~adversely~~negatively impacted by ~~the economic consequences of the COVID-19 pandemic. The U.S. government has responded by passing a number of fiscal stimulus measures~~challenging market technicals and relief programs for households and businesses directly or indirectly impacted by the virus. Stimulus payments and the provision of borrower relief including forbearance and loan modifications have substantially reduced borrower defaults and loan losses relative to levels that would have likely occurred without these actions.

Agency RMBS sharply underperformed during the second quarter, as consistent demand from the Federal Reserve was more than offset by elevated net supply, reduced demand from commercial banks, persistent prepayment concerns and an increased likelihood that the Federal Reserve’s timeline for reducing asset purchases would be accelerated. Prepayment speeds moderated during the quarter, but remained elevated, and the lower interest rate environment at quarter-end should keep prepayments near historical highs over the coming months. Premiums on specified pool Agency RMBS improved marginally during the quarter, and we expect those premiums to be well supported as 30 year mortgage rates remain near 3%. The dollar roll environment remained a bright spot, as implied financing rates improved through the quarter as Federal Reserve purchase activity continued to support the market. While wider spread levels improve the attractiveness of Agency RMBS and despite persistent Federal Reserve demand, the headwinds that the Agency RMBS sector faced during the second quarter largely remain intact.

As we move into the third quarter, investors are focused on the pace of the recovery, the increase in price pressures, the trajectory of new COVID-19 cases and the timing of the Federal Reserve's taper of asset purchases. Our expectation is that growth in the U.S. will remain robust as the economy continues to reopen over the course of the year, and that the inflation numbers we have seenmacro volatility over the past ~~quarter will prove transitory.~~

~~Proposed Changes to LIBOR~~

In 2017, the U.K. Financial Conduct Authority (the "FCA"), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR will not be guaranteed after 2021. The Alternative Reference Rates Committee ("ARRC"), which was convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from LIBOR, has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. ARRC has proposed a paced market transition plan to SOFR from LIBOR, and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. Further, on March 5, 2021, the FCA announced that December 31, 2021 will be the cessation date for 1-week & 2-month tenors of USD-LIBOR. The FCA also set June 30, 2023 as the cessation date for the other five tenors (overnight, 1-month, 3-month, 6-month and 12-month) of USD-LIBOR. Additionally, this FCA announcement constitutes an index cessation event under the International Swaps and Derivatives Association Inc.’s ("ISDA") IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol, as well as the ARRC’s fallback language for non-consumer cash products, giving the market clarity on the spread adjustments to alternative reference rate based fallbacks for all EUR-, CHF-, GBP-, JPY- and USD-LIBOR settings.

On April 6, 2021, New York State ("NYS") put into law legislation to help address challenges surrounding legacy LIBOR contracts that have no effective means to transition away from LIBOR and to incentivize the selection of SOFR-based fallback rates in other contracts. The law applies to existing USD-LIBOR contracts governed by NYS law that use LIBOR as atwo quarters despite supportive credit fundamentals.

~~Table of Contents~~

benchmark and contain no fallback provisions or contain fallback provisions that result in a benchmark replacement that is based in any way on any LIBOR value. For these in scope contracts, the NYS law provides that on and after "LIBOR Replacement Date" (the date that USD-LIBOR ceases to be published or to be representative), USD-LIBOR is replaced by operation of law with the relevant SOFR-based rate plus the spread adjustment recommended for that contract type by the US Federal Reserve or the ARRC, and any LIBOR-based fallback provisions are permanently overridden. Additionally, the law applies to existing USD-LIBOR contracts governed by NYS law that contain fallback provisions that permit or require a party to select a benchmark replacement that is based in any way on any LIBOR value or otherwise in its discretion. For such contracts, the law authorizes and safe harbors the selection by such party of the relevant SOFR-based rate plus the spread adjustment recommended for that contract type by the Federal Reserve or the ARRC to apply on and after the "LIBOR Replacement Date".

SOFR is an overnight rate unlike LIBOR which is a forward-looking term rate, making SOFR an inexact replacement for LIBOR. There is currently no perfect way to create robust, forward-looking, SOFR term rates. Note that the ARRC has announced that they will not recommend a forward-looking SOFR term rate by mid-2021, as previously announced, due to insufficient development of the SOFR derivatives markets. Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR. It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time or to the same alternative reference rate, in each case increasing the difficulty of hedging. Switching existing financial instruments and hedging transactions from LIBOR to SOFR requires calculations of a spread and there is no assurance that the spread adjustments will avoid negative financial impacts on our portfolio at the time of transition.

We have material contracts that are indexed to LIBOR and are monitoring this activity and evaluating the related risks. However, it is not possible to predict the effect of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for LIBOR-based financial instruments. We do not currently intend to amend our 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock or our 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock to change the existing USD-LIBOR cessation fallback language. Our Series B and Series C Preferred Stock each become callable at the time the stock begins to pay a USD-LIBOR-based rate. Should we choose to call the Series B or Series C Preferred Stock in order to avoid a dispute over the results of the USD-LIBOR fallbacks for that class, we may be forced to raise additional funds at an unfavorable time.

The Financial Accounting Standards Board has also issued accounting guidance that provides optional expedients and exceptions to contracts, hedging relationships and other transactions impacted by LIBOR transition if certain criteria are met. The guidance can be applied as of January 1, 2020. We are evaluating our contracts that are eligible for modification relief and may apply the elections prospectively as needed. We are currently evaluating what impact the guidance will have on our consolidated financial statements.

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Investment Activities

The table below shows the composition of our investment portfolio as of ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 and ~~June 30, 2020:~~March 31, 2021:


		As of				As of
$ in thousands	$ in thousands	June 30, 2021	December 31, 2020	June 30, 2020	$ in thousands	March 31, 2022	December 31, 2021	March 31, 2021
Agency RMBS:	Agency RMBS:				Agency RMBS:
30 year fixed-rate, at fair value	30 year fixed-rate, at fair value	8,642,830	8,050,866	6,828	30 year fixed-rate, at fair value	5,861,979	7,701,523	8,997,918
15 year fixed-rate, at fair value		—	—	3,125
Agency CMO		14,201	—	—

Agency CMO, at fair value					Agency CMO, at fair value	60,818	30,757	—
Non-Agency CMBS, at fair value	Non-Agency CMBS, at fair value	63,800	109,583	1,457,915	Non-Agency CMBS, at fair value	61,295	62,909	91,250
Non-Agency RMBS, at fair value	Non-Agency RMBS, at fair value	9,832	11,733	14,404	Non-Agency RMBS, at fair value	8,402	9,070	10,574
GSE CRT, at fair value		—	—	101,886

U.S. Treasury securities, at fair value					U.S. Treasury securities, at fair value	482,445	—	—
Commercial loan, at fair value	Commercial loan, at fair value	20,822	23,098	21,792	Commercial loan, at fair value	23,391	23,515	20,000
Investments in unconsolidated ventures	Investments in unconsolidated ventures	13,936	16,408	19,246	Investments in unconsolidated ventures	4,854	12,476	15,766
Subtotal	Subtotal	8,765,421	8,211,688	1,625,196	Subtotal	6,503,184	7,840,250	9,135,508
TBAs, at implied cost basis (1)	TBAs, at implied cost basis (1)	1,547,465	1,772,211	—	TBAs, at implied cost basis (1)	1,549,395	1,636,906	1,548,066
Total investment portfolio, including TBAs	Total investment portfolio, including TBAs	10,312,886	9,983,899	1,625,196	Total investment portfolio, including TBAs	8,052,579	9,477,156	10,683,574

(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 ~~are accounted for~~ as derivative financial ~~instruments and recorded~~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. ~~Refer~~For further details of our U.S GAAP accounting for TBAs, refer to Note 89 "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 ~~$9.8~~$8.8 billion and purchased ~~$11.0~~$7.6 billion of Agency RMBS during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 primarily to ~~capitalize on a sharp increase~~rotate into higher yielding securities, in ~~interest~~some cases changing coupon rates ~~and lower valuations on investment opportunities early in~~or the ~~year.~~type of specified pool collateral. Purchases were funded with proceeds from the sales and paydowns of ~~securities and by leveraging proceeds from the issuance of common stock.~~securities.

As of ~~June 30, 2021,~~March 31, 2022, our holdings of 30 year fixed-rate Agency RMBS represented approximately ~~84%~~73% of our total investment portfolio, including TBAs, versus 81% as of December 31, ~~2020~~2021 and ~~less than 1%~~84% as of ~~June 30, 2020. We sold substantially all of our Agency RMBS portfolio in the first half of 2020 to generate liquidity and reduce leverage. We resumed investing in~~March 31, 2021. Our 30 year fixed-rate Agency RMBS ~~in July 2020 and began investing in TBAs in the third quarter of 2020. Our Agency RMBS~~ holdings as of ~~June 30,~~March 31, 2022, December 31, 2021 and March 31, 2021 consisted ~~primarily~~ of specified pools with coupon distributions as shown in the table below.


						As of
						March 31, 2022			December 31, 2021			March 31, 2021
$ in thousands	$ in thousands	Fair Value	Percentage		$ in thousands	Fair Value	Percentage		Fair Value	Percentage		Fair Value	Percentage
2.0%	2.0%	3,893,021	45.0	%	2.0%	1,911,141	32.6	%	2,408,404	31.3	%	4,135,167	46.0	%
2.5%	2.5%	2,567,396	29.7	%	2.5%	1,938,205	33.1	%	2,877,568	37.3	%	4,255,013	47.2	%
3.0%	3.0%	2,182,413	25.3	%	3.0%	2,012,633	34.3	%	2,178,476	28.3	%	607,738	6.8	%
Total Agency RMBS		8,642,830	100.0	%
3.5%					3.5%	—	—	%	237,075	3.1	%	—	—	%
Total 30 year fixed-rate Agency RMBS					Total 30 year fixed-rate Agency RMBS	5,861,979	100.0	%	7,701,523	100.0	%	8,997,918	100.0	%

Our purchases of Agency RMBS have been primarily focused on specified pools with attractive prepayment ~~protection, as low mortgage rates and a robust housing market have increased borrower incentives to prepay their mortgage loans.~~profiles. We seek to ~~mitigate~~capitalize on the ~~negative~~ impact of prepayments on our investment portfolio by purchasing specified pools with characteristics that ~~diminish~~optimize borrower incentive to prepay for both our premium and discount priced investments. Specified pools typically consist of characteristics such as a lower loan balance, higher loan-to-value ("LTV") ratio, lower FICO score, ~~higher percentage of~~ non-owner occupied loans (investment and vacation properties) and ~~newly originated loans. In addition, we focus a significant amount of purchases in specified pools that have~~ higher geographic concentrations in states ~~that exhibit slower prepayments~~ such as New York, Florida and Texas. In addition, specified pools with certain loan age and servicers can also exhibit prepayment tendencies that may be attractive.

We invest in TBAs as an alternative means of investing in and financing Agency RMBS. As of ~~June 30, 2021,~~March 31, 2022, the implied cost basis of TBAs represented approximately ~~15%~~19% of our total investment portfolio versus ~~18%~~17% as of December 31, ~~2020.~~2021 and 14% as of March 31, 2021. As of ~~June 30, 2021,~~March 31, 2022, our investments consist of ~~30 year~~30-year Agency RMBS TBAs with coupons that range from 2.5% ~~coupons~~to 4.0% in conventional collateral. We maintain a meaningful allocation to TBAs given attractive ~~implied financing rates in the Agency RMBS TBA~~

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implied financing rates in the Agency RMBS TBA dollar roll market. Implied financing rates in the dollar roll market were ~~substantially~~ below those available in the repurchase market as the sharp rise in mortgage rates led to a supply and demand imbalance in certain coupons, benefiting investors. We anticipate this benefit to diminish in the coming quarters as the imbalance decreases due to ~~the magnitude and persistence~~an increase in production of the Federal Reserve's MBS purchase program, which began to increase holdings in March of 2020. We expect the purchase program to continue in 2021, as the Federal Reserve views the program as a key component of its stated objectives.higher coupon Agency RMBS.

As of ~~June 30,~~March 31, 2022; December 31, 2021 and ~~December~~March 31, ~~2020~~2021 our holdings of non-Agency CMBS represented approximately 1% of our total investment portfolio, including ~~TBAs, versus 90% as of June 30, 2020.~~TBAs. Our non-Agency CMBS portfolio is collateralized by loans secured by various property types located across the United States including office, retail, multifamily, industrial warehouses and hotels. The largest property geographic locations are in California, New York, Texas, Illinois and Florida. Most of our non-Agency CMBS portfolio is comprised of fixed-rate securities that ~~are rated investment grade by a nationally recognized statistical rating organization. All of our non-Agency CMBS~~ are rated single-A (or equivalent) or higher by a nationally recognized statistical rating organization as of ~~June 30, 2021. Further, approximately~~March 31, 2022. Approximately 72% of non-Agency CMBS are rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of ~~June 30, 2021.~~March 31, 2022.

As of ~~June 30,~~March 31, 2022; December 31, 2021 and ~~December~~March 31, ~~2020,~~2021, our holdings of non-Agency RMBS represented less than 1% of our total investment portfolio, including ~~TBAs, versus 1% as~~TBAs.

As of June 30, 2020. We historically held non-Agency RMBS securities collateralized by prime and Alt-A loans and invested in re-securitizations of real estate mortgage investment conduit ("Re-REMIC") RMBS and securitizations of reperforming mortgage loans.

~~We did not hold any GSE CRTs as of June 30, 2021 or December~~March 31, ~~2020. Our~~2022, our holdings of ~~GSE CRT~~U.S. Treasury securities represented approximately 6% of our total investment portfolio, including TBAs, versus 0% as of ~~June 30, 2020. GSE CRTs are unsecured general obligations~~December 31, 2021and March 31, 2021.We use various financial instruments, including swaps and U.S. Treasury securities to keep duration within management's targeted range. Management determines the type of ~~the GSEs that are structured~~financial instrument best suited to ~~provide credit protection to the issuer~~manage duration based on various factors, including interest rate swap spreads, repurchase agreement borrowing rates, expected holding periods and transaction costs. Our holdings of U.S. Treasury securities as of March 31, 2022 were comprised of 5-, 7- and 10-year U.S. Treasury notes with ~~respect to defaults and other credit events within pools~~a weighted average coupon rate of ~~mortgage loans that collateralize MBS issued and guaranteed by the GSEs.~~1.88%.

As of ~~June 30, 2021,~~March 31, 2022, we held an investment in one commercial real estate mezzanine loan that is due in June 2022 and has a loan-to-value ratio of approximately ~~78.9%~~68.0%.

As of ~~June 30, 2021,~~March 31, 2022, we held investments in two unconsolidated ventures that are managed by an affiliate of our Manager. ~~The~~Both of the unconsolidated ventures ~~invest~~are in ~~our target assets.~~liquidation and plan to sell or settle their remaining investments as expeditiously as possible. Until the ventures complete their liquidation, we are committed to fund $6.5 million in additional capital to cover future expenses should they occur.

Financing and Other Liabilities

We have historically used repurchase agreements to finance the majority of our target assets and expect to continue to use repurchase agreements to finance Agency investments in the future. We also currently use repurchase agreements to finance our purchases of U.S. Treasury securities. Repurchase agreements are generally settled on a short-term basis, usually from one day to six months, and bear interest at rates that ~~have historically moved~~are expected to move in close relationship to ~~LIBOR.~~

We also used secured loans from the FHLBI to finance a portion of our investment portfolio. We repaid our secured loans during 2020 with proceeds from sales of assets that collateralized the secured loans. We terminated our membership in FHLBI in the third quarter of 2020.SOFR.

The following table presents the amount of collateralized borrowings outstanding under repurchase agreements ~~and secured loans~~ as of the end of each quarter, the average amount outstanding during the quarter and the maximum balance outstanding during the ~~quarter:~~quarter.


$ in thousands	$ in thousands	Collateralized borrowings under repurchase agreements and secured loans			$ in thousands	Collateralized borrowings under repurchase agreements
Quarter Ended	Quarter Ended	Quarter-end balance	Average quarterly balance (1)	Maximum balance (2)	Quarter Ended	Quarter-end balance	Average quarterly balance (1)	Maximum balance (2)
June 30, 2020		740,000	983,599	1,373,296
September 30, 2020		5,243,288	3,373,356	5,243,288
December 31, 2020		7,228,699	6,883,773	7,237,496
March 31, 2021	March 31, 2021	8,240,887	8,359,010	8,708,686	March 31, 2021	8,240,887	8,359,010	8,708,686
June 30, 2021	June 30, 2021	7,851,204	7,945,494	8,004,924	June 30, 2021	7,851,204	7,945,494	8,004,924
September 30, 2021					September 30, 2021	7,873,798	7,846,536	7,886,360
December 31, 2021					December 31, 2021	6,987,834	7,442,784	7,776,070
March 31, 2022					March 31, 2022	5,837,420	6,218,445	6,636,913

(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.

We have committed to invest up to $125.4 million in unconsolidated ventures that are sponsored by an affiliate of our Manager. As of June 30, 2021, $118.7 million of our commitment to these unconsolidated ventures has been called. We are committed to fund $6.7 million in additional capital to fund future investments and cover future expenses should they occur.

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Hedging Instruments

We enter into interest rate swap agreements that are designed to mitigate the effects of increases in interest rates for a portion of our borrowings. Under these swap agreements, we ~~make~~generally pay fixed interest ~~rate payments~~rates and receive floating interest ~~rate payments~~rates indexed ~~off of one- or three-month LIBOR.~~to SOFR. To a lesser extent, we also enter into interest rate swap agreements whereby we make floating interest rate payments indexed ~~off of one- or three-month LIBOR~~to SOFR and receive fixed interest rate payments as part of our overall risk management strategy. Prior to the transition of our swap portfolio to swaps that are indexed to SOFR in the fourth quarter of 2021, our interest rate swaps were generally indexed to one- or three-month LIBOR.

We actively manage our swap portfolio by terminating and entering into new swaps as the size and composition of our investment portfolio changes. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we terminated existing swaps with a notional amount of ~~$500.0 million~~$4.0 billion and entered into new swaps with a notional amount of ~~$1.5~~$5.1 billion as part of our overall risk management strategy. 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 realized a net gain of ~~$161.2~~$343.3 million on interest rate swaps during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 primarily due to rising interest rates.

We enter into currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on investments denominated in foreign currencies. As of ~~June 30, 2021,~~March 31, 2022, we had ~~€14.8~~€6.5 million or ~~$18.0~~$7.4 million (December 31, ~~2020: €27.8~~2021: €11.7 million or ~~$33.1~~$13.6 million) of notional amount of forward contracts denominated in Euro related to our investment in an unconsolidated venture. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we settled currency forward contracts of ~~€41.7~~€17.6 million or ~~$49.9~~$20.4 million ~~(June 30, 2020: €41.7~~(March 31, 2021: €27.8 million or ~~$45.8~~$33.1 million) in notional amount and realized a net ~~loss~~gain of ~~$552,000 (June 30, 2020: $346,000~~$193,000 (March 31, 2021: $539,000 net ~~gain)~~loss).

Capital Activities

As of ~~June 30, 2021,~~March 31, 2022, we may sell up to ~~22,060,000~~56,865,980 shares of our common stock and 5,500,000 shares of our preferred stock from time to time in at-the-market or privately negotiated transactions under anour equity distribution agreement with a placement ~~agent. We sold 15,500,000~~agents. During the three months ended March 31, 2022, we did not sell any shares of common stock under our equity distribution agreement. During three months ended March 31, 2021, we sold 15,550,000 shares of common stock under an equity distribution agreement for proceeds of $57.8 million, net of approximately $831,000 in commissions and fees during the six months ended June 30, 2021. We did not sell any shares of common stock under equity distribution agreements during the three months ended June 30, 2021 or three and six months ended June 30, 2020.fees.

For information on dividends declared during the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ see Note 1213 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I. Item 1 of this report on Form 10-Q.

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we did not repurchase any shares of our common stock.

In May 2022, our Board of Directors approved a preferred stock repurchase plan under which we are authorized to repurchase 3,000,000 shares of our Series B Preferred Stock and 5,000,000 shares of our Series C Preferred Stock.

Refer to Note 16 - "Subsequent Events" of our condensed consolidated financial statements in Part I. Item 1. of this report on Form 10-Q for details of our one-for-ten reverse stock split that was approved by our Board of Directors on May 3, 2022.

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Book Value per Common Share

We calculate book value per common share as ~~follows:~~follows.


		As of			As of
$ in thousands except per share amounts	$ in thousands except per share amounts	June 30, 2021	December 31, 2020	$ in thousands except per share amounts	March 31, 2022	December 31, 2021
Numerator (adjusted equity):	Numerator (adjusted equity):			Numerator (adjusted equity):
Total equity	Total equity	1,373,379	1,367,158	Total equity	1,127,947	1,402,135
Less: Liquidation preference of Series A Preferred Stock		—	(140,000)

Less: Liquidation preference of Series B Preferred Stock	Less: Liquidation preference of Series B Preferred Stock	(155,000)	(155,000)	Less: Liquidation preference of Series B Preferred Stock	(155,000)	(155,000)
Less: Liquidation preference of Series C Preferred Stock	Less: Liquidation preference of Series C Preferred Stock	(287,500)	(287,500)	Less: Liquidation preference of Series C Preferred Stock	(287,500)	(287,500)
Total adjusted equity	Total adjusted equity	930,879	784,658	Total adjusted equity	685,447	959,635

Denominator (number of shares):	Denominator (number of shares):			Denominator (number of shares):
Common stock outstanding	Common stock outstanding	289,681	203,222	Common stock outstanding	329,918	329,875

Book value per common share	Book value per common share	3.21	3.86	Book value per common share	2.08	2.91

Our book value per common share decreased ~~16.8%~~28.5% as of ~~June 30, 2021~~March 31, 2022 compared to December 31, ~~2020. The increase~~2021 as the anticipation of an accelerated timeline for balance sheet reduction and the sharp pivot to tighter monetary policy by the Federal Reserve has pressured valuations lower in ~~interest rate volatility and prepayment speeds, combined with~~2022. Premium valuations on our specified pool collateral have also deteriorated as higher rates reduced investor demand for prepayment ~~protection~~protection. Furthermore, the Russian invasion of Ukraine has led to a reduction in demand for risk assets as volatility and the potential for an earlier than expected taper of MBS purchases from the Federal Reserve resulted in Agency RMBS sharply underperforming interest rate swap hedges during the first half of 2021. In particular, lower coupon 30 year Agency RMBS underperformed given their increased sensitivity to changes in interest rates and expectations of the Federal Reserve’s tapering.uncertainty increased. 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, ~~2020.~~2021.

Recent Accounting Standards

~~See Part I, Item 1, Financial Statements Note 2 - "Accounting Pronouncements Recently Issued".~~None.

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Results of Operations

The table below presents certain information from our condensed consolidated statements of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
$ in thousands, except share data	$ in thousands, except share data	2021	2020	2021	2020	$ in thousands, except share data	2022	2021
Interest income	Interest income					Interest income
Mortgage-backed and credit risk transfer securities		42,634	29,628	82,068	215,164
Commercial and other loans		520	545	1,096	1,708
Mortgage-backed and other securities						Mortgage-backed and other securities	41,637	39,434
Commercial loan						Commercial loan	537	576
Total interest income	Total interest income	43,154	30,173	83,164	216,872	Total interest income	42,174	40,010
Interest expense	Interest expense					Interest expense
Repurchase agreements (1)	Repurchase agreements (1)	(3,177)	(1,270)	(4,837)	77,772	Repurchase agreements (1)	(2,104)	(1,660)
Secured loans		—	1,712	—	8,358

Total interest expense	Total interest expense	(3,177)	442	(4,837)	86,130	Total interest expense	(2,104)	(1,660)
Net interest income	Net interest income	46,331	29,731	88,001	130,742	Net interest income	44,278	41,670
Other income (loss)	Other income (loss)					Other income (loss)
Gain (loss) on investments, net	Gain (loss) on investments, net	72,620	(306,366)	(259,237)	(1,061,849)	Gain (loss) on investments, net	(504,388)	(331,857)
(Increase) decrease in provision for credit losses	(Increase) decrease in provision for credit losses	830	—	1,768	—	(Increase) decrease in provision for credit losses	—	938
Equity in earnings (losses) of unconsolidated ventures	Equity in earnings (losses) of unconsolidated ventures	331	318	237	488	Equity in earnings (losses) of unconsolidated ventures	71	(94)
Gain (loss) on derivative instruments, net	Gain (loss) on derivative instruments, net	(186,284)	(343)	100,677	(911,122)	Gain (loss) on derivative instruments, net	238,860	286,961
Realized and unrealized credit derivative income (loss), net		—	(2,738)	—	(35,790)
Net gain (loss) on extinguishment of debt		—	3,701	—	(1,107)

Other investment income (loss), net	Other investment income (loss), net	16	731	—	1,534	Other investment income (loss), net	55	(16)
Total other income (loss)	Total other income (loss)	(112,487)	(304,697)	(156,555)	(2,007,846)	Total other income (loss)	(265,402)	(44,068)
Expenses	Expenses					Expenses
Management fee – related party	Management fee – related party	5,455	9,793	10,339	20,746	Management fee – related party	5,274	4,884
General and administrative	General and administrative	2,147	4,080	4,140	7,181	General and administrative	2,024	1,993
Total expenses	Total expenses	7,602	13,873	14,479	27,927	Total expenses	7,298	6,877
Net income (loss) attributable to Invesco Mortgage Capital Inc.		(73,758)	(288,839)	(83,033)	(1,905,031)
Net income (loss)						Net income (loss)	(228,422)	(9,275)
Dividends to preferred stockholders	Dividends to preferred stockholders	9,900	11,106	21,007	22,213	Dividends to preferred stockholders	8,394	11,107
Issuance and redemption costs of redeemed preferred stock		4,682	—	4,682	—

Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	(88,340)	(299,945)	(108,722)	(1,927,244)	Net income (loss) attributable to common stockholders	(236,816)	(20,382)
Net income (loss) per share:
Earnings (loss) per share:						Earnings (loss) per share:
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders					Net income (loss) attributable to common stockholders
Basic	Basic	(0.34)	(1.80)	(0.45)	(11.91)	Basic	(0.72)	(0.09)
Diluted	Diluted	(0.34)	(1.80)	(0.45)	(11.91)	Diluted	(0.72)	(0.09)
Weighted average number of shares of common stock:	Weighted average number of shares of common stock:					Weighted average number of shares of common stock:
Basic	Basic	260,139,759	166,943,073	242,147,331	161,857,175	Basic	329,850,097	223,954,989
Diluted	Diluted	260,139,759	166,943,073	242,147,331	161,857,175	Diluted	329,850,097	223,954,989

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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, 2021~~March 31, 2022 and ~~2020.~~2021.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
$ in thousands	$ in thousands	2021		2020		2021		2020		$ in thousands	2022		2021
Average earning assets (1)	Average earning assets (1)	8,829,072		1,905,555		9,078,218		9,871,653		Average earning assets (1)	7,005,218		9,330,134
Average earning asset yields (2)	Average earning asset yields (2)	1.96	%	6.33	%	1.83	%	4.39	%	Average earning asset yields (2)	2.41	%	1.72	%

(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 ~~approximately $8.8~~$7.0 billion for the three months ended ~~June 30, 2021 (June 30, 2020: $1.9~~March 31, 2022 (March 31, 2021: $9.3 billion) ~~and $9.1 billion~~Average earning assets decreased for the ~~six~~three months ended ~~June 30,~~March 31, 2022 compared to 2021 ~~(June 30, 2020: $9.9 billion)~~as we reduced the size of our investment portfolio given expectations that the Federal Reserve's tapering of asset purchases could result in an increase in market volatility and lower valuations on our holdings. Average earning asset yields were 2.41% for the three months ended March 31, 2022 (March 31, 2021: 1.72%). Average earning ~~assets~~asset yields increased for the three months ended ~~June 30, 2021~~March 31, 2022 compared to 2020 as we resumed investing in Agency RMBS during the third quarter of 2020 after selling a substantial portion of our MBS and GSE CRT portfolio in the first half of 2020 to generate liquidity and reduce leverage in response to the financial market disruption caused by the COVID-19 pandemic. Average earning assets decreased for the six months ended June 30, 2021 ~~compared to 2020 primarily~~ due to ~~these sales.~~our rotation into higher yielding Agency RMBS.

We earned total interest income of ~~$43.2 million and $83.2~~$42.2 million for the three ~~and six~~ months ended ~~June 30, 2021, respectively (June 30, 2020: $30.2 million and $216.9~~March 31, 2022 (March 31, 2021: $40.0 million). Our interest income includes coupon interest and net premium amortization on ~~MBS~~mortgage-backed and ~~GSE CRTs~~other securities as well as interest income on our commercial ~~and other loans~~loan as shown in the table below.

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2021 2020 2021 2020
Interest Income
MBS and GSE CRT - coupon interest 51,513 26,841 103,003 228,950
MBS and GSE CRT - net premium amortization (8,879) 2,787 (20,935) (13,786)
MBS and GSE CRT - interest income 42,634 29,628 82,068 215,164
Commercial and other loans 520 545 1,096 1,708
Total interest income 43,154 30,173 83,164 216,872


	Three Months Ended March 31,
$ in thousands	2022	2021
Interest Income
Mortgage-backed and other securities - coupon interest	48,229	51,490
Mortgage-backed and other securities - net premium amortization	(6,592)	(12,056)
Mortgage-backed and other securities - interest income	41,637	39,434
Commercial loan	537	576
Total interest income	42,174	40,010

~~MBS~~Mortgage-backed and ~~GSE CRT~~other securities interest income increased ~~$13.0~~$2.2 million for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~2020 primarily~~2021 despite lower average earning assets due to a ~~$24.7 million increase in coupon interest reflecting higher average earning assets, which was partially offset by a 437~~69 basis point ~~decrease~~increase in average earning asset yields. MBS and GSE CRT interest income decreased $133.1 million for the six months ended June 30, 2021 compared to 2020 reflecting lower average earning assets and a 256 basis point decrease in average earning asset yields. Average earning asset yields decreased for the three and six months ended June 30, 2021 compared to 2020 due to changes in portfolio composition. Almost all of our investment portfolio (excluding TBAs) was invested in Agency RMBS as of June 30, 2021. For further details on the composition of our investment portfolio as of June 30, 2021 and 2020, see the discussion under Investment Activities above in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Interest income on our commercial ~~and other loans decreased $25,000 and $612,000~~loan was relatively flat during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to ~~2020. The decrease for six months ended June 30, 2021 is primarily due to the sale of our loan participation interest in April 2020.~~2021.

Prepayment Speeds

Our RMBS portfolio ~~(and previously our GSE CRT 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. 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 recognized on our ~~MBS~~mortgage-backed and ~~GSE CRT~~other securities portfolio for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
$ in thousands	$ in thousands	2021	2020	2021	2020	$ in thousands	2022	2021
Agency RMBS	Agency RMBS	(9,450)	(894)	(21,934)	(21,807)	Agency RMBS	(6,928)	(12,484)
Agency CMBS		—	(78)	—	(1,744)

Non-Agency CMBS	Non-Agency CMBS	845	4,473	1,723	9,531	Non-Agency CMBS	503	878
Non-Agency RMBS	Non-Agency RMBS	(274)	(178)	(724)	2,520	Non-Agency RMBS	(151)	(450)
GSE CRT		—	(536)	—	(2,286)

U.S. Treasury Securities						U.S. Treasury Securities	(16)	—
Net (premium amortization) discount accretion	Net (premium amortization) discount accretion	(8,879)	2,787	(20,935)	(13,786)	Net (premium amortization) discount accretion	(6,592)	(12,056)

Net premium amortization ~~increased $11.7 million and $7.1~~decreased $5.5 million for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to ~~2020~~2021 primarily due to ~~sales of assets purchased at discounts and the purchase of~~repositioning our Agency RMBS ~~at premiums during the second half of 2020 and in 2021~~.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 the components of interest expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021.


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended March 31,
$ in thousands	$ in thousands	2021	2020	2021	2020	$ in thousands	2022	2021
Interest Expense	Interest Expense					Interest Expense
Interest expense on repurchase agreement borrowings	Interest expense on repurchase agreement borrowings	2,252	3,233	5,960	92,342	Interest expense on repurchase agreement borrowings	3,092	3,708
Amortization of net deferred (gain) loss on de-designated interest rate swaps	Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,429)	(4,503)	(10,797)	(14,570)	Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,196)	(5,368)
Repurchase agreements interest expense	Repurchase agreements interest expense	(3,177)	(1,270)	(4,837)	77,772	Repurchase agreements interest expense	(2,104)	(1,660)
Secured loans		—	1,712	—	8,358

Total interest expense	Total interest expense	(3,177)	442	(4,837)	86,130	Total interest expense	(2,104)	(1,660)

Our repurchase agreements interest expense, ~~on repurchase agreement borrowings~~which equals our total interest expense, decreased ~~$1.0 million~~$444,000 for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~2020 despite higher average borrowings primarily~~2021 due to ~~a change in the collateral underlying~~ our ~~repurchase agreements. Our interest expense on repurchase agreement borrowings decreased $86.4 million for the six months ended June 30, 2021 compared to 2020 primarily due to~~ lower average ~~borrowings and a lower average cost of funds reflecting decreases in the Federal Funds interest rate.~~borrowings.

Our repurchase agreement 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 ~~$5.4 million and $10.8~~$5.2 million during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 and ~~$4.5~~$5.4 million and ~~$14.6 million~~ during the three ~~and six~~ months ended ~~June 30, 2020, respectively.~~March 31, 2021. 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 life of the interest rate swap agreements. ~~We increased the amount of gains and losses reclassified as a decrease to interest expense during the~~ ~~three and six months ended June 30, 2020~~ ~~by $2.7 million because it was probable that the original forecasted repurchase agreement transactions would not occur by the end of the originally specified time period~~. During the next twelve months, we estimate that ~~$21.2~~$19.0 million of net deferred gains on de-designated interest rate swaps will be reclassified from other comprehensive income and recorded as a decrease to interest expense.

We repaid our secured loans in the third quarter of 2020 and did not incur interest expense for secured loans during the three and six months ended June 30, 2021. For the three and six months ended June 30, 2020, the weighted average borrowing rate on our secured loans was 0.85% and 1.48%, respectively.

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Our total interest expense during the three and six months ended June 30, 2021 decreased $3.6 million and $91.0 million, respectively, compared to 2020 primarily due to decreases of $2.7 million and $94.7 million, respectively, in interest expense on repurchase agreements borrowings and secured loans as discussed above.

The table below presents information related to our borrowings and cost of funds for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
$ in thousands	$ in thousands	2021		2020		2021		2020		$ in thousands	2022		2021
Total average borrowings (1)	Total average borrowings (1)	7,945,877		981,992		8,145,507		8,756,995		Total average borrowings (1)	6,219,694		8,347,354
Maximum borrowings during the period (2)	Maximum borrowings during the period (2)	8,004,924		1,373,296		8,708,686		23,132,234		Maximum borrowings during the period (2)	6,636,913		8,708,686
Cost of funds (3)	Cost of funds (3)	(0.16)	%	0.18	%	(0.12)	%	1.97	%	Cost of funds (3)	(0.14)	%	(0.08)	%

(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.

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Total average borrowings ~~increased $7.0~~decreased $2.1 billion in the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~2020 because we resumed investing in Agency RMBS in July 2020 and financing purchases with repurchase agreements. Total average borrowings decreased in the six months ended June 30,~~ 2021 ~~compared to 2020 primarily because we repaid repurchase agreements~~ as we ~~sold assets from~~reduced the size of our ~~MBS~~investment portfolio, and ~~GSE CRT portfolio~~related repurchase agreement borrowings, given expectations that the Federal Reserve's tapering of asset purchases could result in ~~the first half of 2020. Average borrowings also decreased because we repaid $1.65 billion of secured loans during 2020.~~an increase in market volatility and lower valuations on our holdings. Our average cost of funds decreased ~~34 and 209~~6 basis points for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to ~~2020 primarily due to the factors discussed above.~~2021 as amortization of net deferred gains on de-designated interest rate swaps comprised a larger portion of our total interest expense.

Net Interest Income

The table below presents the components of net interest income for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
$ in thousands	$ in thousands	2021		2020		2021		2020		$ in thousands	2022		2021
Interest Income	Interest Income									Interest Income
Mortgage-backed and credit risk transfer securities		42,634		29,628		82,068		215,164
Commercial and other loans		520		545		1,096		1,708
Mortgage-backed and other securities										Mortgage-backed and other securities	41,637		39,434
Commercial loan										Commercial loan	537		576
Total interest income	Total interest income	43,154		30,173		83,164		216,872		Total interest income	42,174		40,010
Interest Expense	Interest Expense									Interest Expense
Interest expense on repurchase agreement borrowings	Interest expense on repurchase agreement borrowings	2,252		3,233		5,960		92,342		Interest expense on repurchase agreement borrowings	3,092		3,708
Amortization of net deferred (gain) loss on de-designated interest rate swaps	Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,429)		(4,503)		(10,797)		(14,570)		Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,196)		(5,368)
Repurchase agreements interest expense	Repurchase agreements interest expense	(3,177)		(1,270)		(4,837)		77,772		Repurchase agreements interest expense	(2,104)		(1,660)
Secured loans		—		1,712		—		8,358

Total interest expense	Total interest expense	(3,177)		442		(4,837)		86,130		Total interest expense	(2,104)		(1,660)
Net interest income	Net interest income	46,331		29,731		88,001		130,742		Net interest income	44,278		41,670
Net interest rate margin	Net interest rate margin	2.12	%	6.15	%	1.95	%	2.42	%	Net interest rate margin	2.55	%	1.80	%

Our net interest income, which equals interest income less interest expense, totaled ~~$46.3~~$44.3 million ~~and $88.0 million for the three and six months ended June 30, 2021, respectively (June 30, 2020: $29.7 million and $130.7 million). The increase in net interest income~~ for the three months ended June 30, 2021 compared to 2020 was primarily the result of resuming investing in Agency RMBS in July 2020 and financing purchases with repurchase agreement borrowings. The decrease in net interest income for the six months ended June 30, 2021 compared to 2020 was primarily due to the sale of MBS and GSE CRTs in the first half of 2020 as previously discussed.

March 31, 2022 (March 31, 2021: $41.7 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 ~~2.12% and 1.95%~~2.55% for the three ~~and six~~ months ended ~~June 30, 2021, respectively (June 30, 2020: 6.15% and 2.42%~~March 31, 2022 (March 31, 2021: 1.80%). The ~~decrease~~increase in net interest income and net interest rate margin for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to ~~2020~~2021 was primarily due to ~~the change in~~ our ~~portfolio composition, including related repurchase agreements borrowings. For the six~~

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months ended June 30, 2021 compared to 2020, net interest rate margin was impacted by decreases in the Federal Funds rate that had a greater impact on our average cost of funds than on our average asset yields. Our cost of funds on all of our borrowings is influenced by changes in short term interest rates, whereas substantially all of the Company’s investments were fixed-rate assets as of June 30, 2021.rotation into higher yielding Agency RMBS.

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, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2021 2020 2021 2020
Net realized gains (losses) on sale of investments (118,006) (404,739) (234,853) (409,024)
Impairment of investments the Company intends to sell or more likely than not will be required to sell before recovery of amortized cost basis and other impairments — (6,287) — (85,121)
Net unrealized gains (losses) on MBS and GSE CRT accounted for under the fair value option 189,804 105,445 (22,108) (561,427)
Net unrealized gains (losses) on commercial loan and loan participation interest 822 3,023 (2,276) (2,469)
Realized loss on loan participation interest — (3,808) — (3,808)
Total gain (loss) on investments, net 72,620 (306,366) (259,237) (1,061,849)


	Three Months Ended March 31,
$ in thousands	2022	2021
Net realized gains (losses) on sale of MBS	(318,970)	(116,847)

Net unrealized gains (losses) on MBS accounted for under the fair value option	(165,467)	(211,912)
Net unrealized gains (losses) on commercial loan	(124)	(3,098)
Net unrealized gains (losses) on U.S. Treasury securities	(19,827)	—
Total gain (loss) on investments, net (1)	(504,388)	(331,857)

During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, we sold MBS ~~and GSE CRTs~~ and realized net losses of ~~$118.0~~$319.0 million ~~and $234.9 million, respectively (June 30, 2020:~~(March 31, 2021: net losses of ~~$404.7 million and $409.0~~$116.8 million). ~~The majority of sales~~Realized net losses during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~were~~primarily reflect sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS and capitalize on a sharp increase in interest rates and lower valuations on investment opportunities early in the year. We sold securities during the three and six months ended June 30, 2020 to generate liquidity and reduce leverage in response to the financial market disruption caused by the COVID-19 pandemic. A portion of these sales were involuntary liquidations at significantly distressed market prices as certain of our repurchase agreement counterparties seized and sold our securities when we were unable to meet margin calls in March 2020.

We did not record any impairment during the three and six months ended June 30, 2021 because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis. We recorded $6.3 million and $85.1 million of impairment on non-Agency RMBS and CMBS securities during the three and six months ended June 30, 2020, respectively, ~~because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis~~.RMBS.

We have elected the fair value option for all of our MBS purchased on or after September 1, ~~2016 and our GSE CRTs purchased on or after August 24, 2015.~~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, 2021, $8.7~~March 31, 2022, $5.9 billion (December 31, ~~2020: $8.1~~2021: $7.7 billion) or 99% (December 31, ~~2020:~~2021: 99%) of our MBS ~~and GSE CRT~~ are accounted for under the fair value option.

We recorded net unrealized ~~gains~~losses on our MBS ~~and GSE CRT~~ portfolio accounted for under the fair value option of ~~$189.8 million and net unrealized losses of $22.1 million in the three and six months ended June 30, 2021, respectively, compared to net unrealized gains of $105.4~~$165.5 million in the three months ended ~~June 30, 2020 and~~March 31, 2022 compared to net unrealized losses of ~~$561.4~~$211.9 million in the ~~six months ended June 30, 2020. Net unrealized gains in~~ three months ended ~~June 30, 2021 largely reflect reversals of unrealized losses upon sale.~~March 31, 2021. Net unrealized losses in the ~~six~~three months ended ~~June 30,~~March 31, 2022 primarily reflect wider interest rate spreads on our Agency RMBS. Net unrealized losses in the three months ended March 31, 2021 reflect wider interest rate spreads on our

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Agency assets ~~during the first quarter of 2021. Net unrealized losses~~as a sharp increase in ~~the six months ended June 30, 2020 reflect lower interest~~mortgage rates and ~~wider interest rate spreads~~reduced investor demand for prepayment protection resulted in lower valuation premiums on our Agency ~~and non-Agency assets.~~RMBS specified pools.

We recorded an unrealized ~~gain of $822,000 and an unrealized~~ loss of ~~$2.3~~$124,000 and $3.1 million on our commercial loan in the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively, compared to unrealized losses of $785,000 and $2.5 million in the three and six months ended June 30, 2020,~~ respectively. We value our commercial loan based upon a valuation from an independent pricing service.

We recorded ~~a realized loss~~unrealized losses of ~~$3.8~~$19.8 million on ~~our loan participation interest~~U.S. Treasury securities in the three ~~and six~~ months ended ~~June 30, 2020.~~March 31, 2022 due to rising interest rates. We ~~sold our loan participation interest on April 1, 2020.~~did not hold any U.S. Treasury securities during the three months ended March 31, 2021.

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(Increase) Decrease in Provision for Credit Losses

As of ~~June 30, 2021, $70.9~~March 31, 2022, $68.2 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, ~~2020: $116.9~~2021: $70.2 million). As of December 31, 2020, we had established a $1.8 million allowance 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 recorded an $830,000 and a $1.8 million decrease in the provision for credit losses for this security during the three and six months ended June 30, 2021, respectively, because the security fully repaid in June 2021. We did not record any provisions for credit losses ~~the~~ during the three ~~and six~~ months ended ~~June 30, 2020. Refer to Note 4 – "Mortgage-Backed Securities and Credit Risk Transfer Securities" of our condensed consolidated financial statements included~~March 31, 2022. We recorded a $938,000 decrease in ~~Part I. Item 1 of this Report for additional information on our allowance~~the provision for credit ~~losses.~~losses on a single non-Agency CMBS during the three months ended March 31, 2021 because the valuation for the security improved.

Equity in Earnings (Losses) of Unconsolidated Ventures

For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, we recorded equity in earnings of unconsolidated ventures of ~~$331,000 and $237,000, respectively (June 30, 2020:~~$71,000 (March 31, 2021: equity in ~~earnings~~losses of ~~$318,000~~$94,000). Earnings and ~~$488,000). We recorded equity in earnings for the three and six months ended June 30, 2021 and 2020 primarily due to earnings~~losses on unconsolidated ventures are driven by the underlying portfolio investments.

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:~~periods.


$ in thousands	$ in thousands	Three months ended June 30, 2021				$ in thousands	Three months ended March 31, 2022
Derivative not designated as hedging instrument	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	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	Interest Rate Swaps	(166,365)	(4,572)	(32,786)	(203,723)	Interest Rate Swaps	343,309	1,284	(11,399)	333,194

Currency Forward Contracts	Currency Forward Contracts	(13)	—	(142)	(155)	Currency Forward Contracts	193	—	(41)	152
TBAs	TBAs	10,431	—	7,163	17,594	TBAs	(60,073)	—	(34,413)	(94,486)
Total	Total	(155,947)	(4,572)	(25,765)	(186,284)	Total	283,429	1,284	(45,853)	238,860

$ in thousands Three months ended June 30, 2020
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
Currency Forward Contracts (138) — (205) (343)
Total (138) — (205) (343)

$ in thousands Six Months Ended June 30, 2021
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 161,162 (9,121) (11,705) 140,336
Interest Rate Swaptions (553) — — (553)
Currency Forward Contracts (552) — 1,113 561
TBAs (33,754) — (5,913) (39,667)
Total 126,303 (9,121) (16,505) 100,677

$ in thousands Six Months Ended June 30, 2020
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 (904,704) 11,924 (18,532) (911,312)
Currency Forward Contracts 346 — (156) 190
Total (904,358) 11,924 (18,688) (911,122)

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$ in thousands	Three months ended March 31, 2021
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	327,527	(4,549)	21,081	344,059
Interest Rate Swaptions	(553)	—	—	(553)
Currency Forward Contracts	(539)	—	1,255	716
TBAs	(44,185)	—	(13,076)	(57,261)
Total	282,250	(4,549)	9,260	286,961

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we terminated existing interest rate swaps with a notional amount of ~~$500.0 million~~$4.0 billion and entered into new swaps with a notional amount of ~~$1.5~~$5.1 billion. We realized a net ~~loss~~gains of ~~$166.4~~$343.3 million and ~~a net gain of $161.2~~$327.5 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, respectively, on interest rate swaps due to changing interest rates. During the six months ended June 30, 2020, we terminated all of our outstanding interest rate swaps as we repositioned our portfolio in response to unprecedented market conditions associated with the COVID-19 pandemic. Our exposure to interest rate risk decreased as we sold Agency assets and repaid borrowings. We realized a net loss of $904.7 million for the six months ended June 30, 2020 on interest rate swaps primarily due to fallingrising interest rates.

~~We resumed entering into interest rate swaps in July 2020 as we resumed investing in Agency RMBS and financing our investments with repurchase agreements.~~ As of ~~June 30, 2021,~~March 31, 2022, we had ~~$7.9~~$5.8 billion of repurchase agreement borrowings with a weighted average remaining maturity of 5228 days. We typically refinance each repurchase agreement at market interest rates upon maturity. We primarily 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, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we held ~~the following~~ interest rate swaps whereby we receive floating interest ~~at a one-month LIBOR rate:~~based upon SOFR as shown in the table below.


$ in thousands	$ in thousands	As of June 30, 2021						As of December 31, 2020						$ in thousands	As of March 31, 2022						As of December 31, 2021
Derivative instrument	Derivative instrument	Notional Amounts	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Average Maturity (Years)	Notional Amounts	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity	Derivative instrument	Notional Amounts	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity	Notional Amounts	Weighted Average Fixed Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity
Interest Rate Swaps (1)	Interest Rate Swaps (1)	6,300,000	0.41	%	0.09	%	6.2	6,300,000	0.41	%	0.15	%	6.7	Interest Rate Swaps (1)	6,800,000	0.42	%	0.30	%	6.5	6,300,000	0.30	%	0.05	%	5.7

(1)Notional amount as of ~~June 30,~~March 31, 2022 and December 31, 2021excludes $1.3 billion of interest rate swaps with forward start dates.

As of ~~June 30,~~March 31, 2022 and December 31, 2021, we held ~~the following~~ interest rate swaps whereby we pay floating interest ~~at a one-month LIBOR rate. We did not hold any such interest rate swaps~~based upon SOFR as ~~of December 31, 2020.~~shown in the table below.


$ in thousands	$ in thousands	As of June 30, 2021						$ in thousands	As of March 31, 2022						As of December 31, 2021
Derivative instrument	Derivative instrument	Notional Amounts	Weighted Average Floating Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Years to Maturity	Derivative instrument	Notional Amounts	Weighted Average Floating Pay Rate		Weighted Average Fixed Receive Rate		Weighted Average Years to Maturity	Notional Amounts	Weighted Average Floating Pay Rate		Weighted Average Floating Receive Rate		Weighted Average Years to Maturity
Interest Rate Swaps	Interest Rate Swaps	1,000,000	0.10	%	0.37	%	2.9	Interest Rate Swaps	2,300,000	0.30	%	1.53	%	7.0	1,750,000	0.05	%	0.98	%	4.9

We use currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates. As of ~~June 30, 2021,~~March 31, 2022, we had ~~$18.0~~$7.4 million (December 31, ~~2020: $33.1~~2021: $13.6 million) of notional amount of currency forward contracts related to an investment in an unconsolidated venture denominated in euro.

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, 2021,~~March 31, 2022, we had $1.5 billion net notional amount of TBAs (December 31, ~~2020: $1.7~~2021: $1.6 billion). We recorded ~~$17.6~~$94.5 million and $57.3 million of net realized and unrealized ~~gains and $39.7 million of realized and unrealized~~ losses ~~net~~ on TBAs during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, respectively. Realized and unrealized losses in the six months ended June 30, 2021 reflect a sharp increase in mortgage rates during the first quarter of 2021. We did not invest in TBAs during the three and six months ended June 30, 2020.

~~Realized and Unrealized Credit Derivative Income (Loss), net~~

~~The table below summarizes the components of realized and unrealized credit derivative income (loss), net for the three and six months ended June 30, 2020.~~

Three Months Ended June 30, Six Months Ended June 30,
$ in thousands 2020 2020
GSE CRT embedded derivative coupon interest 1,127 5,845
Gain (loss) on settlement of GSE CRT embedded derivatives (16,414) (14,131)
Change in fair value of GSE CRT embedded derivatives 12,549 (27,504)
Total realized and unrealized credit derivative income (loss), net (2,738) (35,790)

~~Realized and unrealized credit derivative loss in the three and six months ended June 30, 2020 was driven by a decline in the fair value of our GSE CRT embedded derivatives as asset prices dropped~~respectively, primarily due to ~~spread widening. We did not hold any GSE CRTs during the three and six months ended June 30, 2021.~~

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~~Net Gain (Loss)~~rising interest rates, in addition to wider interest rate spreads on ~~Extinguishment of Debt~~

As discussed in Note 6 - "Borrowings" of our condensed consolidated financial statements include in Part I. Item 1. of this report on Form 10-Q, certain of our counterparties seized and sold securities that we had posted as collateral for our repurchase agreements during the six months ended June 30, 2020. We recorded early termination and legal fees paid to our counterparties that were associated with the termination of these repurchase agreements as a loss on extinguishment of debt and settlements of counterparty claims for less than the principal balance of our repurchase agreements as a gain on extinguishment of debt in our condensed consolidated statement of operations.Agency RMBS.

Other Investment Income (Loss), net

Our other investment income (loss), net during the three ~~and six~~ months ended ~~June 30, 2020 primarily~~March 31, 2022 and 2021 consisted of ~~quarterly dividends from FHLBI stock. The amount of our dividend income varied based upon the number of shares that we were required to own~~foreign currency transaction gains and ~~the dividend declared per share. FHLBI redeemed our stock at cost during 2020. We terminated our FHLBI membership in the third quarter of 2020.~~losses.

Expenses

We incurred management fees of ~~$5.5 million and $10.3~~$5.3 million for the three ~~and six~~ months ended ~~June 30, 2021, respectively (June 30, 2020: $9.8 million and $20.7~~March 31, 2022 (March 31, 2021: $4.9 million). Management fees ~~decreased~~increased for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to the same ~~periods~~period in ~~2020~~2021 due to a ~~lower~~higher stockholders' equity management fee base. Refer to Note 1112 – "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 ~~$2.1 million and $4.1~~$2.0 million for the three ~~and six~~ months ended ~~June 30, 2021, respectively (June 30, 2020: $4.1 million and $7.2~~March 31, 2022 (March 31, 2021: $2.0 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. General and administrative costs were lower for the three and six months ended June 30, 2021 compared to the same periods in 2020 primarily due to fees paid for third-party legal and advisory services in connection with navigating market disruption associated with the COVID-19 pandemic during the three and six months ended June 30, 2020 totaling $1.5 million and $2.6 million, respectively.

~~Issuance and Redemption Costs of Redeemed Preferred Stock~~

On June 16, 2021, we redeemed all issued and outstanding shares of our Series A Preferred Stock. The excess of the consideration transferred over carrying value is accounted for as a deemed dividend and resulted in a reduction of $4.7 million in net income (loss) attributable to common stockholders during the three and six months ended June 30, 2021.

Net Income (Loss) attributable to Common Stockholders

For the three months ended ~~June 30, 2021,~~March 31, 2022, our net loss attributable to common stockholders was ~~$88.3~~$236.8 million ~~(June 30, 2020: $299.9~~(March 31, 2021: $20.4 million net loss attributable to common stockholders) or ~~$0.34~~$0.72 basic and diluted net loss per average share available to common stockholders ~~(June 30, 2020: $1.80~~(March 31, 2021: $0.09 basic and diluted net loss per average share available to common stockholders). The change in net ~~income (loss)~~loss attributable to common stockholders was primarily due to (i) net ~~gains~~losses on investments of ~~$72.6~~$504.4 million in the 2022 period compared to $331.9 million in the 2021 ~~period compared to net losses on investments of $306.4 million in the 2020~~ period; (ii) net losses on derivative instruments of $186.3 million in the 2021 period compared to net losses on derivative instruments of $343,000 in the 2020 period; and (iii) a $16.6 million increase in net interest income.

For the six months ended June 30, 2021 our net loss attributable to common stockholders was $108.7 million (June 30, 2020: $1.9 billion net loss attributable to common stockholders) or $0.45 basic and diluted net loss per average share available to common stockholders (June 30, 2020: $11.91 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 gains on derivative instruments of ~~$100.7~~$238.9 million in the 2022 period compared to $287.0 million in the 2021 period compared to net losses on derivative instruments of $911.1 million in the 2020 period; (ii) net losses on investments of $259.2 million in the 2021 period compared to net losses on investments of $1.1 billion in the 2020 period; (iii) credit derivative net losses of $35.8 million in the 2020 period; and ~~(iv)~~(iii) a ~~$42.7~~$2.6 million ~~decrease~~increase in net interest income.

For further information on the changes in net ~~gains~~gain (loss) on investments, net gain (loss) on derivative instruments and net ~~gain (loss) on investments, realized and unrealized credit derivative income (loss), net and~~changes in net interest income, see preceding discussion under ~~"Gain~~“Gain (Loss) on Investments, net”, “Gain (Loss) on Derivative Instruments, ~~net," "Gain (Loss) on Investments, net," "Realized~~net” and ~~Unrealized Credit Derivative Income (Loss), net," and "Net~~“Net Interest ~~Income."~~Income”.

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Non-GAAP Financial Measures

~~We use~~The table below shows the ~~following~~ non-GAAP financial measures we use to analyze ~~the Company's~~our operating results and the most directly comparable U.S. GAAP measures. We believe these ~~financial~~non-GAAP measures are useful to investors in assessing our performance as discussed further ~~discussed below:~~below.

•~~earnings available for distribution (and by calculation, earnings available for distribution per common share),~~

•~~effective interest income (and by calculation, effective yield),~~

•~~effective interest expense (and by calculation, effective cost of funds),~~

•~~effective net interest income (and by calculation, effective interest rate margin), and~~

•~~economic debt-to-equity ratio.~~

~~The most directly comparable U.S. GAAP measures are:~~

•~~net income (loss) attributable to common stockholders (and by calculation, basic earnings (loss) per common share),~~

•~~total interest income (and by calculation, earning asset yields),~~

•~~total interest expense (and by calculation, cost of funds),~~

•~~net interest income (and by calculation, net interest rate margin), and~~

•~~debt-to-equity ratio.~~

Commencing with the quarter ended June 30, 2021, we changed the title of our non-GAAP measure of core earnings (and by calculation, core earnings per common share) to earnings available for distribution (and by calculation, earnings available for distribution per common share) to clarify what the measure presents. The adjustments made to reconcile net income (loss) attributable to common stockholders to earnings available for distribution are identical to those adjustments that we previously made to determine core earnings.

We adjust our calculations of non-GAAP financial measures for changes in the composition of our investment portfolio where appropriate. We have historically excluded the impact of realized and unrealized gains and losses on GSE CRT embedded derivatives from the calculation of earnings available for distribution. Beginning in 2021, realized and unrealized gains and losses on GSE CRT embedded derivatives no longer impacted the reconciliation of U.S. GAAP net income (loss) attributable to common stockholders to earnings available for distribution because we sold all of our GSE CRTs that were accounted for as hybrid financial instruments during 2020. Additionally, we have historically calculated effective interest income (and by calculation, effective yield) as U.S. GAAP total interest income adjusted for GSE CRT embedded derivative coupon interest that was recorded as realized and unrealized credit derivative income (loss), net. As we no longer earn embedded derivative coupon interest due to the sale of our GSE CRTs during 2020, effective interest income will be equal to U.S. GAAP total interest income beginning in 2021.

We did not present earnings available for distribution for the first half of 2020 or for the year ended December 31, 2020 because earnings available for distribution excluded the material adverse impact of the market disruption caused by the COVID-19 pandemic on our financial condition. In addition, earnings available for distribution for the first half of 2020 and the year ended December 31, 2020 was not indicative of the reduced earnings potential of our current investment portfolio.


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 ~~(formerly Core Earnings)~~

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) loss on foreign currency transactions, ~~net;~~net and amortization of net deferred (gain) loss on de-designated interest rate ~~swaps; and net (gain) loss on extinguishment of debt.~~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. However, because not all of our peer companies use identical

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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:~~periods.


		Three Months Ended June 30,	Six Months Ended June 30,	Three Months Ended March 31,
$ in thousands, except per share data	$ in thousands, except per share data	2021			2021	$ in thousands, except per share data	2022	2021
Net income (loss) attributable to common stockholders	Net income (loss) attributable to common stockholders	(88,340)			(108,722)	Net income (loss) attributable to common stockholders	(236,816)	(20,382)
Adjustments:	Adjustments:					Adjustments:
(Gain) loss on investments, net	(Gain) loss on investments, net	(72,620)			259,237	(Gain) loss on investments, net	504,388	331,857
Realized (gain) loss on derivative instruments, net (1)	Realized (gain) loss on derivative instruments, net (1)	155,947			(126,303)	Realized (gain) loss on derivative instruments, net (1)	(283,429)	(282,250)
Unrealized (gain) loss on derivative instruments, net (1)	Unrealized (gain) loss on derivative instruments, net (1)	25,765			16,505	Unrealized (gain) loss on derivative instruments, net (1)	45,853	(9,260)
TBA dollar roll income (2)	TBA dollar roll income (2)	9,680			20,225	TBA dollar roll income (2)	13,401	10,545

(Gain) loss on foreign currency transactions, net (3)	(Gain) loss on foreign currency transactions, net (3)	(16)			—	(Gain) loss on foreign currency transactions, net (3)	(55)	16
Amortization of net deferred (gain) loss on de-designated interest rate swaps(4)	Amortization of net deferred (gain) loss on de-designated interest rate swaps(4)	(5,429)			(10,797)	Amortization of net deferred (gain) loss on de-designated interest rate swaps(4)	(5,196)	(5,368)

Subtotal	Subtotal	113,327			158,867	Subtotal	274,962	45,540
Earnings available for distribution	Earnings available for distribution	24,987			50,145	Earnings available for distribution	38,146	25,158
Basic income (loss) per common share	Basic income (loss) per common share	(0.34)			(0.45)	Basic income (loss) per common share	(0.72)	(0.09)
Earnings available for distribution per common share (5)	Earnings available for distribution per common share (5)	0.10			0.21	Earnings available for distribution per common share (5)	0.12	0.11

(1)U.S. GAAP gain (loss) on derivative instruments, net on the condensed consolidated statements of operations includes the following ~~components:~~components.


		Three Months Ended June 30,	Six Months Ended June 30,	Three Months Ended March 31,
$ in thousands	$ in thousands	2021			2021	$ in thousands	2022	2021
Realized gain (loss) on derivative instruments, net	Realized gain (loss) on derivative instruments, net	(155,947)			126,303	Realized gain (loss) on derivative instruments, net	283,429	282,250
Unrealized gain (loss) on derivative instruments, net	Unrealized gain (loss) on derivative instruments, net	(25,765)			(16,505)	Unrealized gain (loss) on derivative instruments, net	(45,853)	9,260
Contractual net interest income (expense) on interest rate swaps	Contractual net interest income (expense) on interest rate swaps	(4,572)			(9,121)	Contractual net interest income (expense) on interest rate swaps	1,284	(4,549)
Gain (loss) on derivative instruments, net	Gain (loss) on derivative instruments, net	(186,284)			100,677	Gain (loss) on derivative instruments, net	238,860	286,961

(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 securities, 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)Gain (loss) on foreign currency transactions, net 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:~~components.


		Three Months Ended June 30,	Six Months Ended June 30,		Three Months Ended March 31,
$ in thousands	$ in thousands	2021		2021		$ in thousands	2022	2021
Interest expense on repurchase agreement borrowings	Interest expense on repurchase agreement borrowings	2,252		5,960		Interest expense on repurchase agreement borrowings	3,092	3,708
Amortization of net deferred (gain) loss on de-designated interest rate swaps	Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,429)		(10,797)		Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,196)	(5,368)
Repurchase agreements interest expense	Repurchase agreements interest expense	(3,177)		(4,837)		Repurchase agreements interest expense	(2,104)	(1,660)

(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 ~~three and six months ended June 30, 2021 are:~~following periods.


		Three Months Ended June 30,	Six Months Ended June 30,	Three Months Ended March 31,
$ in thousands	$ in thousands	2021			2021	$ in thousands	2022	2021
Effective net interest income(1)	Effective net interest income(1)	36,330			68,083	Effective net interest income(1)	40,366	31,753
TBA dollar roll income	TBA dollar roll income	9,680			20,225	TBA dollar roll income	13,401	10,545

Equity in earnings (losses) of unconsolidated ventures	Equity in earnings (losses) of unconsolidated ventures	331			237	Equity in earnings (losses) of unconsolidated ventures	71	(94)
(Increase) decrease in provision for credit losses	(Increase) decrease in provision for credit losses	830			1,768	(Increase) decrease in provision for credit losses	—	938
Total expenses	Total expenses	(7,602)			(14,479)	Total expenses	(7,298)	(6,877)
Subtotal	Subtotal	39,569			75,834	Subtotal	46,540	36,265
Dividends to preferred stockholders	Dividends to preferred stockholders	(9,900)			(21,007)	Dividends to preferred stockholders	(8,394)	(11,107)
Issuance and redemption costs of redeemed preferred stock		(4,682)			(4,682)

Earnings available for distribution	Earnings available for distribution	24,987			50,145	Earnings available for distribution	38,146	25,158

(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,~~March 31, 2022 compared to the same period in 2021 ~~was driven by~~due to higher effective net interest income and TBA dollar roll income. ~~As discussed above, we did not report earnings available for distribution for the three and six months ended June 30, 2020.~~

~~Effective Interest Income / Effective Yield /~~ Effective Interest Expense / Effective Cost of Funds / Effective Net Interest Income / Effective Interest Rate Margin

Prior to 2021, we calculated effective interest income (and by calculation, effective yield) as U.S. GAAP total interest income adjusted for GSE CRT embedded derivative coupon interest that was recorded as realized and unrealized credit derivative income (loss), net. We included our GSE CRT embedded derivative coupon interest in effective interest income because GSE CRT coupon interest was not accounted for consistently under U.S. GAAP. We accounted for GSE CRTs purchased prior to August 24, 2015 as hybrid financial instruments, but elected the fair value option for GSE CRTs purchased on or after August 24, 2015. Under U.S. GAAP, coupon interest on GSE CRTs accounted for using the fair value option is recorded as interest income, whereas coupon interest on GSE CRTs accounted for as hybrid financial instruments was recorded as realized and unrealized credit derivative income (loss). We added back GSE CRT embedded derivative coupon interest to our total interest income because we considered GSE CRT embedded derivative coupon interest a current component of our total interest income irrespective of whether we elected the fair value option for the GSE CRT or accounted for the GSE CRT as a hybrid financial instrument.

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 floating rate borrowings. We add back the net payments we make 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;~~net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest ~~expense and GSE CRT embedded derivative coupon interest that was recorded as realized and unrealized credit derivative income (loss), net.~~expense.

We believe the presentation of ~~effective interest income, effective yield,~~ 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.

~~Table of Contents~~

The following ~~tables reconcile total interest income to effective interest income and yield to effective yield for the following periods:~~

Three Months Ended June 30,
2021 2020
$ in thousands Reconciliation Yield/Effective Yield Reconciliation Yield/Effective Yield
Total interest income 43,154 1.96 % 30,173 6.33 %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net — — % 1,127 0.24 %
Effective interest income 43,154 1.96 % 31,300 6.57 %

Six Months Ended June 30,
2021 2020
$ in thousands Reconciliation Yield/Effective Yield Reconciliation Yield/Effective Yield
Total interest income 83,164 1.83 % 216,872 4.39 %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net — — % 5,845 0.12 %
Effective interest income 83,164 1.83 % 222,717 4.51 %

Our effective interest income increased in the three months ended June 30, 2021 compared to the same period in 2020 primarily due to higher average earning assets, which was partially offset by a decrease in average earning asset yields. Our average earning assets increased to $8.8 billion for the three months ended June 30, 2021 from $1.9 billion for the same period in 2020 because we resumed investing in Agency RMBS during the third quarter of 2020 after selling a substantial portion of our MBS and GSE CRT portfolio in the first half of 2020. Our effective interest income decreased in the six months ended June 30, 2021 compared to the same period in 2020 due to lower average earning assets and yields primarily as a result of our asset sales in the first half of 2020. Our effective yield decreased in the three and six months ended June 30, 2021 compared to the same periods in 2020 due to changes in portfolio composition. Almost all of our investment portfolio (excluding TBAs) was invested in Agency RMBS as of June 30, 2021 compared to less than 1% as of June 30, 2020.

~~Table of Contents~~

~~The following tables reconcile~~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,							Three Months Ended March 31,
		2021			2020				2022			2021
$ in thousands	$ in thousands	Reconciliation	Cost of Funds / Effective Cost of Funds		Reconciliation	Cost of Funds / Effective Cost of Funds		$ in thousands	Reconciliation	Cost of Funds / Effective Cost of Funds		Reconciliation	Cost of Funds / Effective Cost of Funds
Total interest expense	Total interest expense	(3,177)	(0.16)	%	442	0.18	%	Total interest expense	(2,104)	(0.14)	%	(1,660)	(0.08)	%
Add: Amortization of net deferred gain (loss) on de-designated interest rate swaps	Add: Amortization of net deferred gain (loss) on de-designated interest rate swaps	5,429	0.27	%	4,503	1.83	%	Add: Amortization of net deferred gain (loss) on de-designated interest rate swaps	5,196	0.33	%	5,368	0.26	%
Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net	Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net	4,572	0.23	%	—	—	%	Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net	(1,284)	(0.08)	%	4,549	0.22	%
Effective interest expense	Effective interest expense	6,824	0.34	%	4,945	2.01	%	Effective interest expense	1,808	0.11	%	8,257	0.40	%

Six Months Ended June 30,
2021 2020
$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds
Total interest expense (4,837) (0.12) % 86,130 1.97 %
Add: Amortization of net deferred gain (loss) on de-designated interest rate swaps 10,797 0.27 % 14,570 0.33 %
Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net 9,121 0.22 % (11,924) (0.27) %
Effective interest expense 15,081 0.37 % 88,776 2.03 %

Our effective interest expense increased in the three months ended June 30, 2021 compared to the same period in 2020 due to contractual net interest expense on interest rate swaps of $4.6 million during the three months ended June 30, 2021. We did not incur any contractual net interest expense during the three months ended June 30, 2020. Our effective cost of funds decreased in the three months ended June 30, 2021 compared to the same period in 2020 primarily due to a change in the collateral underlying our repurchase agreements. Additionally, we repaid our secured loans during 2020. Our effective interest expense and effective cost of funds decreased in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 primarily due to ~~lower average borrowings and a lower average cost of funds reflecting decreases in the Federal Funds interest rate. Lower total interest expense was partially offset by~~ contractual net interest ~~expense~~income on interest rate swaps of ~~$9.1~~$1.3 million during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$11.9~~$4.5 million of contractual net interest ~~income~~expense for the same period in ~~2020.~~2021.

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The following ~~tables reconcile~~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,							Three Months Ended March 31,
		2021			2020				2022			2021
$ in thousands	$ in thousands	Reconciliation	Net Interest Rate Margin / Effective Interest Rate Margin		Reconciliation	Net Interest Rate Margin / Effective Interest Rate Margin		$ in thousands	Reconciliation	Net Interest Rate Margin / Effective Interest Rate Margin		Reconciliation	Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income	Net interest income	46,331	2.12	%	29,731	6.15	%	Net interest income	44,278	2.55	%	41,670	1.80	%
Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps	Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,429)	(0.27)	%	(4,503)	(1.83)	%	Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps	(5,196)	(0.33)	%	(5,368)	(0.26)	%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net		—	—	%	1,127	0.24	%

Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net	Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net	(4,572)	(0.23)	%	—	—	%	Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net	1,284	0.08	%	(4,549)	(0.22)	%
Effective net interest income	Effective net interest income	36,330	1.62	%	26,355	4.56	%	Effective net interest income	40,366	2.30	%	31,753	1.32	%

Six Months Ended June 30,
2021 2020
$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income 88,001 1.95 % 130,742 2.42 %
Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps (10,797) (0.27) % (14,570) (0.33) %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net — — % 5,845 0.12 %
Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net (9,121) (0.22) % 11,924 0.27 %
Effective net interest income 68,083 1.46 % 133,941 2.48 %

~~Our effective~~Effective net interest income increased in the three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 primarily ~~because we resumed investing in Agency RMBS during the third quarter of 2020 after selling a substantial portion of our MBS and GSE CRT portfolio in the first half of 2020. Our effective~~due to higher net interest income ~~decreased~~and changes in ~~the six months ended June 30, 2021 compared to the same period in 2020 due to lower average earning assets and yields primarily~~contractual net interest income (expense) on interest rate swaps as ~~a result of our asset sales in the first half of 2020 that were partially offset by lower average borrowings and a lower average cost of funds reflecting decreases in the Federal Funds interest rate.~~discussed above. Our effective interest rate margin ~~decreased~~increased in the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to the same periods in ~~2020~~2021 primarily due to our rotation into higher yielding Agency RMBS and changes in ~~portfolio composition.~~contractual net interest income (expense) 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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. 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, 2021,~~March 31, 2022, approximately 92% 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 other mortgage REITs who also invest in TBAs and present a similar non-GAAP measure of leverage.

~~June 30, 2021~~March 31, 2022


$ in thousands	$ in thousands	Agency RMBS	Credit Portfolio (1)	Total	$ in thousands	Agency RMBS	Credit Portfolio (1)	Total
Mortgage-backed securities	Mortgage-backed securities	8,657,030	73,633	8,730,663	Mortgage-backed securities	5,922,797	69,697	5,992,494
U.S. Treasury securities					U.S. Treasury securities	482,445	—	482,445
Cash and cash equivalents (2)	Cash and cash equivalents (2)	134,664	—	134,664	Cash and cash equivalents (2)	251,724	—	251,724
Restricted cash (3)	Restricted cash (3)	353,386	—	353,386	Restricted cash (3)	245,809	—	245,809
Derivative assets, at fair value (3)	Derivative assets, at fair value (3)	3,980	437	4,417	Derivative assets, at fair value (3)	17,437	237	17,674
Other assets	Other assets	18,157	35,413	53,570	Other assets	63,693	28,779	92,472
Total assets	Total assets	9,167,217	109,483	9,276,700	Total assets	6,983,905	98,713	7,082,618

Repurchase agreements	Repurchase agreements	7,851,204	—	7,851,204	Repurchase agreements	5,837,420	—	5,837,420
Derivative liabilities, at fair value (3)	Derivative liabilities, at fair value (3)	17,242	20	17,262	Derivative liabilities, at fair value (3)	77,606	7	77,613
Other liabilities	Other liabilities	31,404	3,451	34,855	Other liabilities	26,421	13,217	39,638
Total liabilities	Total liabilities	7,899,850	3,471	7,903,321	Total liabilities	5,941,447	13,224	5,954,671

Total stockholders' equity (allocated)	Total stockholders' equity (allocated)	1,267,367	106,012	1,373,379	Total stockholders' equity (allocated)	1,042,458	85,489	1,127,947
Debt-to-equity ratio (4)	Debt-to-equity ratio (4)	6.2	—	5.7	Debt-to-equity ratio (4)	5.6	—	5.2
Economic debt-to-equity ratio (5)	Economic debt-to-equity ratio (5)	7.4	—	6.8	Economic debt-to-equity ratio (5)	7.1	—	6.5

(1)Investments in non-Agency CMBS, non-Agency RMBS, a commercial loan 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 ~~the~~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 ($1.5 billion as of ~~June 30, 2021)~~March 31, 2022) to total stockholders' equity.

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December 31, ~~2020~~2021


$ in thousands	$ in thousands	Agency RMBS	Credit Portfolio (1)	Total	$ in thousands	Agency RMBS	Credit Portfolio (1)	Total
Mortgage-backed securities	Mortgage-backed securities	8,050,865	121,317	8,172,182	Mortgage-backed securities	7,732,281	71,978	7,804,259
Cash and cash equivalents (2)	Cash and cash equivalents (2)	148,011	—	148,011	Cash and cash equivalents (2)	357,134	—	357,134
Restricted cash (3)	Restricted cash (3)	243,963	610	244,573	Restricted cash (3)	219,918	—	219,918
Derivative assets, at fair value (3)	Derivative assets, at fair value (3)	9,893	111	10,004	Derivative assets, at fair value (3)	—	270	270
Other assets	Other assets	17,606	40,475	58,081	Other assets	25,728	36,532	62,260
Total assets	Total assets	8,470,338	162,513	8,632,851	Total assets	8,335,061	108,780	8,443,841

Repurchase agreements	Repurchase agreements	7,228,699	—	7,228,699	Repurchase agreements	6,987,834	—	6,987,834

Derivative liabilities, at fair value (3)	Derivative liabilities, at fair value (3)	5,537	807	6,344	Derivative liabilities, at fair value (3)	14,356	—	14,356
Other liabilities	Other liabilities	27,114	3,536	30,650	Other liabilities	35,596	3,920	39,516
Total liabilities	Total liabilities	7,261,350	4,343	7,265,693	Total liabilities	7,037,786	3,920	7,041,706

Total stockholders' equity (allocated)	Total stockholders' equity (allocated)	1,208,988	158,170	1,367,158	Total stockholders' equity (allocated)	1,297,275	104,860	1,402,135
Debt-to-equity ratio (4)	Debt-to-equity ratio (4)	6.0	—	5.3	Debt-to-equity ratio (4)	5.4	—	5.0
Economic debt-to-equity ratio (5)	Economic debt-to-equity ratio (5)	7.4	—	6.6	Economic debt-to-equity ratio (5)	6.6	—	6.2

(1)Investments in non-Agency CMBS, non-Agency RMBS, a commercial loan 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 ~~the~~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 ($~~1.8~~1.6 billion as of December 31, ~~2020)~~2021) to total stockholders' equity.

Liquidity and Capital Resources

Liquidity is a measurement 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.

The COVID-19 pandemic-driven disruptions in the real estate, mortgage and financial markets negatively affected our liquidity during the year ended December 31, 2020. Under the terms of our repurchase agreements, our lenders have the contractual right to mark the underlying securities that we post as collateral to fair value as determined in their sole discretion. In addition, our lenders have the contractual right to increase the "haircut", or percentage amount by which collateral value must exceed the amount of borrowings, as market conditions become more volatile. As a result of significant spread widening in both Agency and non-Agency securities in the latter part of the first quarter of 2020, valuations of our portfolio assets declined sharply in a short period of time, leading to an exceptional increase in the frequency and magnitude of margin calls. We sold portfolio assets to generate liquidity, in many cases at significantly distressed market prices. Additionally, our lenders raised required haircuts on our collateral for new repurchase agreements, driving further liquidity needs. These events have led us to seek to avoid financing less liquid assets, such as non-Agency securities, with repurchase agreements.

We held cash, cash equivalents and restricted cash of ~~$488.1~~$497.5 million at ~~June 30, 2021 (June 30, 2020: $271.6~~March 31, 2022 (March 31, 2021: $579.0 million). Our cash, cash equivalents and restricted cash increased due to normal fluctuations in cash balances related to the timing of

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principal and interest payments, repayments of debt, and asset purchases and sales. Our operating activities provided net cash of ~~$73.5~~$40.1 million for the ~~six~~three months ended ~~June 30, 2021 (June 30, 2020: $130.6~~March 31, 2022 (March 31, 2021: $34.5 million).

Our investing activities ~~used~~provided net cash of ~~$704.1 million~~$1.1 billion in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to net cash ~~provided by~~used in investing activities of ~~$18.0 billion~~$986.3 million in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Our primary source of cash from investing activities for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was proceeds from sales of MBS ~~and GSE CRTs~~ of ~~$9.8~~$8.8 billion ~~(June 30, 2020: $23.1~~(March 31, 2021: $5.5 billion). We also generated ~~$416.5~~$168.3 million from principal payments of MBS ~~and GSE CRTs~~ during the ~~six~~three months ended ~~June 30, 2021 (June 30, 2020: $690.1~~March 31, 2022 (March 31, 2021: $200.6 million). We ~~invested $11.0~~used cash of $7.6 billion into purchase MBS and ~~GSE CRTs~~$502.3 million to purchase U.S. Treasury securities during the ~~six~~three months ended ~~June 30, 2021 (June 30, 2020: $5.0 billion)~~March 31, 2022 (March 31, 2021: $7.0 billion to purchase MBS). We received cash of ~~$126.3~~$283.4 million to settle derivative contracts in the ~~six~~three months ended ~~June 30, 2021 (June 30, 2020: net cash used~~March 31, 2022 (March 31, 2021: $282.3 million).

Table of ~~$904.4 million).~~Contents

Our financing activities ~~provided~~used net cash of ~~$726.1 million~~$1.2 billion for the ~~six~~three months ended ~~June 30, 2021 (June 30, 2020:~~March 31, 2022 (March 31, 2021: net cash ~~used~~provided by financing activities of ~~$18.2~~$1.1 billion). During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we ~~received~~used cash for net principal repayments on our repurchase agreements of $1.2 billion (March 31, 2021: net cash ~~from repurchase agreement borrowing~~provided of ~~$622.5 million (June 30, 2020: net repayments of $17.5~~$1.0 billion). In addition, we repaid $910.0 million of secured loans from the FHLBI during the six months ended June 30, 2020. We used cash of $140.0 million to redeem our Series A Preferred Stock during the six months ended June 30, 2021. We also used cash of ~~$62.2~~$38.1 million for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 to pay dividends ~~(June 30, 2020: $102.6~~(March 31, 2021: $27.4 million). Proceeds from issuance of common stock provided ~~$307.6~~$161.4 million ~~for~~during the ~~six~~three months ended ~~June 30, 2021 (June 30, 2020: $347.1 million).~~March 31, 2021.

As of ~~June 30, 2021,~~March 31, 2022, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was ~~4.9%~~4.8% for Agency ~~RMBS.~~RMBS and 0.3% for U.S. Treasury securities. The haircuts ranged from a low of 3% to a high of 5%. for Agency RMBS and a low of 0% to a high of 1% for U.S. Treasury securities. 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.

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Forward-Looking Statements Regarding Liquidity

As of ~~June 30, 2021,~~March 31, 2022, we held ~~$8.2~~$5.6 billion of Agency securities and $482.4 million of U.S. Treasury securities that are financed by repurchase agreements. We also had approximately ~~$516.5~~$413.0 million of unencumbered investments and unrestricted cash of ~~$134.7~~$251.7 million as of ~~June 30, 2021.~~March 31, 2022. As of March 31, 2022, our known contractual obligations primarily consist of $5.8 billion of repurchase agreement borrowings with a weighted average remaining maturity of 28 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 $6.5 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.

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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.

~~Contractual Obligations~~

We have entered into an agreement with our Manager under which our Manager is entitled to receive a management fee and the reimbursement of certain operating expenses incurred on our behalf. The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our stockholders’ equity, per annum. Refer to Note 11 - "Related Party Transactions" of our condensed consolidated financial statements for additional information on how our management fee is calculated. Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel who, notwithstanding that certain of those individuals are also our officers, receive no cash compensation directly from us. We are required to reimburse our Manager for operating expenses related to us incurred by our Manager, including certain salary expenses and other expenses relating to legal, accounting, due diligence and other services. Our reimbursement obligation is not subject to any dollar limitation. Refer to Note 11 – "Related Party Transactions" of our condensed consolidated financial statements for details of our reimbursements to our Manager.

~~As of June 30, 2021, we had the following contractual obligations:~~

Payments Due by Period
$ in thousands Total Less than 1
year 1-3 years 3-5 years After 5
years
Repurchase agreements 7,851,204 7,851,204 — — —
Interest expense on repurchase agreements 1,685 1,685 — — —
Total (1)
7,852,889 7,852,889 — — —

~~(1)Excluded from total contractual obligations are the amounts due to our Manager under the management agreement, as those obligations do not have fixed and determinable payments.~~

~~Off-Balance Sheet Arrangements~~

We have committed to invest up to $125.4 million in unconsolidated ventures that are sponsored by an affiliate of our Manager. As of June 30, 2021, $118.7 million of our commitment to these unconsolidated ventures had been called. We are committed to fund $6.7 million in additional capital to fund future investments and cover future expenses should they occur.

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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, ~~2020.~~2021.

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.

~~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, 2021, no counterparties held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $68.7 million, or 5% of our stockholders' equity. The following table summarizes our exposure to counterparties by geographic concentration as of June 30, 2021. 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 4,866,085 254,953
Europe (excluding United Kingdom) 2 816,313 33,435
Asia 4 2,168,806 114,004
Total 18 7,851,204 402,392

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, 2021,~~March 31, 2022, 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, ~~2021.~~2022.

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. 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

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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, 2021,~~March 31, 2022, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

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Exposure to Financial Counterparties

As of March 31, 2022, no counterparties held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $56.4 million, or 5% of our stockholders' equity. The following table summarizes our exposure to counterparties by geographic concentration as of March 31, 2022. 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	3,244,027	168,333
Europe (excluding United Kingdom)	2	592,114	27,428
Asia	3	1,412,692	60,025
United Kingdom	1	588,587	13,570
Total	18	5,837,420	269,356

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 associated with the COVID-19 pandemic, see Part I. Item 1 - Risk Factors of our annual report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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 agre~~ements, futures contracts and TBAs.~~ements.

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.

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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 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. We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads. 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 maintaining 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.

Unprecedented government responses to the COVID-19 pandemic, including fiscal stimulus, monetary policy actions, and various purchase and financing programs have impacted and will continue to impact credit spreads.

Prepayment Risk

As we receive prepayments of principal on our investments, premiums paid 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.

Historically low interest rates, high interest rate volatility, uncertainties related to government policies on mortgage finance in response to the COVID-19 pandemic, social distancing, 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.

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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 and related preventative measures have 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. As a result, if these market conditions persist, margin call risk remains 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, at ~~June 30,~~March 31, 2022 and December 31, 2021, 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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							At March 31, 2022				At December 31, 2021
Change in Interest Rates	Change in Interest Rates	Percentage Change in Projected Net Interest Income		Percentage Change in Projected Portfolio Value		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%	+1.00%	(3.60)	%	(2.55)	%	+1.00%	(2.50)	%	(1.37)	%	(3.27)	%	(1.61)	%
+0.50%	+0.50%	0.02	%	(1.03)	%	+0.50%	(1.25)	%	(0.56)	%	(0.19)	%	(0.52)	%
-0.50%	-0.50%	(9.10)	%	(0.11)	%	-0.50%	0.98	%	0.20	%	(1.96)	%	(0.38)	%
-1.00%	-1.00%	(22.88)	%	(1.82)	%	-1.00%	1.39	%	(0.09)	%	(16.33)	%	(2.11)	%

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 ~~base~~ interest rate ~~scenario assumes~~scenarios assume interest rates at ~~June 30,~~March 31, 2022 and December 31, 2021. Furthermore, while ~~we generally expect to retain such assets and~~ the ~~associated~~analysis reflects the estimated impact of interest rate ~~risk~~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 ~~maturity, future purchases and sales of assets could materially change~~ our interest rate risk profile.

Our scenario analysis assumes a floor of 0% for U.S. Treasury yields. Given the relatively low interest rates at ~~June 30, 2021,~~March 31, 2022, to be consistent, we also applied a floor of 0% for all related funding costs. Due to this floor, we anticipate that declines in funding costs resulting from a significant interest rate decrease would be limited. At the same time, increases in prepayment speed forecasts resulting from lower rates are also limited by this assumption. For purposes of our calculations, the net interest income projections are determined for each specific security. In contrast, for the market value analysis, this floor may limit the gains in market values in scenarios where the interest rate drops significantly.

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

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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.

~~The conditions related~~Commercial real estate occupancy and rental rates continue to ~~the COVID-19 pandemic~~improve across most property types and residential properties continue to benefit from strong demand and limited housing supply. While loan delinquencies remain elevated, they continue to decline from their post-pandemic peak levels. Further, stimulative monetary policies have ~~adversely affected the fundamentals of~~helped support real estate activity and property valuations. Despite these positives, many of our portfolio investments. The significant decrease in economic activity and/or resulting decline in the housing market could have an adverse effect on the value of our investments in mortgage real estate-related assets. Further, because of the COVID-19 pandemic’s impact on the overall economy, such as rising unemployment levels or changes in consumer behavior relatedborrowers continue to ~~loans as well as government policies and pronouncements, borrowers may~~ experience difficulties meeting their obligations or seek to forbear or further forbear payment on ~~or refinance~~ their mortgage loans to avail themselves of lower rates. In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants underlying our commercial property assets resulting in potential delinquencies, defaults or declines in asset values. In many instances, tenants are foregoing rent payments or seeking forbearance.loans. As a result, loans may continue to experience ~~increased delinquencies~~elevated delinquency levels and eventual defaults, which could impact the ~~fundamental~~ performance of our mortgage-backed securities. ~~Further, we~~We also expect credit rating agencies to continue to reassess transactions ~~that are~~ negatively impacted by these adverse ~~changes. This~~changes, which may result in our investments being ~~downgraded by credit rating agencies.~~

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downgraded.

Foreign Exchange Rate Risk

WeAs of March 31, 2022 we have an investment of ~~€10.4~~€2.7 million in an unconsolidated joint venture whose net assets and results of operations are exposed to foreign currency translation risk when translated in U.S. dollars upon consolidation. We ~~seek~~have historically sought to hedge our foreign currency exposures by purchasing currency forward contracts.

The unconsolidated joint venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible.

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

•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.

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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, 2021.~~March 31, 2022. 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, 2021~~March 31, 2022 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, 2021,~~March 31, 2022, we were not involved in any such legal proceedings.

ITEM 1A. RISK FACTORS.

There were no material changes during the period covered by this Report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the SEC on February ~~22, 2021.~~17, 2022. 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.

During the three months ended ~~June 30, 2021,~~March 31, 2022, we did not repurchase any shares of our common stock.

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~~May 4, ~~2021~~2022	By:	/s/ John M. Anzalone
		John M. Anzalone
		Chief Executive Officer

~~August~~May 4, ~~2021~~2022	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						Articles of Amendment and Restatement of Invesco Mortgage Capital Inc. (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission ("SEC") on August 12, 2009).

3.2						Articles Supplementary of 7.75% Fixed-to-Floating Series AB Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form 8-A, filed with the SEC on ~~July 23, 2012)~~September 8, 2014).

3.3						Articles Supplementary classifying 1,500,000 shares of the Company’s preferred stock as additional Series AB Shares (incorporated by reference to Exhibit ~~3.1~~3.2 to the Current Report on Form 8-K, filed with the SEC on March 19, 2019).

3.4						Articles Supplementary of 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form 8-A, filed with the SEC on August 11, 2017).

3.5						Articles Supplementary classifying 4,000,000 shares of the Company’s preferred stock as additional Series C Shares (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K, filed with the SEC on March 19, 2019).

3.6						Articles Supplementary reclassifying 2,110,000 shares of authorized but unissued shares of Series A Preferred Stock as shares of Preferred Stock without designation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on June 17, 2021).

~~3.5~~						Articles Supplementary of 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form 8-A, filed with the SEC on September 8, 2014).

~~3.6~~						Articles Supplementary classifying 1,500,000 shares of the Company’s preferred stock as additional Series B Shares (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, filed with the SEC on March 19, 2019).

3.7						Articles Supplementary of 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form 8-A, filed with the SEC on August 11, 2017).

~~3.8~~						Articles Supplementary classifying 4,000,000 shares of the Company’s preferred stock as additional Series C Shares (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K, filed with the SEC on March 19, 2019).

~~3.9~~						Amended and Restated Bylaws of Invesco Mortgage Capital Inc., incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on February 17, 2017.

~~10.1~~						~~Form of Restricted Stock Award Agreement for Non-Executive Directors under the Invesco Mortgage Capital Inc. 2009 Equity Incentive Plan (May 2021)~~.

~~10.2~~						Amendment No. 1 to the Equity Distribution Agreement among the Company, the Operating Partnership, the Manager and JonesTrading Institutional Services LLC (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K, filed with the SEC on June 17, 2021).

31.1						Certification of John M. Anzalone pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of R. Lee Phegley, Jr. pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of John M. Anzalone pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of R. Lee Phegley, Jr. pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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)

6554


$ in thousands	Three Months Ended June 30, 2020
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


Currency Forward Contracts	(138)	0	(205)	(343)

Total	(138)	0	(205)	(343)


$ in thousands	Six Months Ended June 30, 2021
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	161,162	(9,121)	(11,705)	140,336
Interest Rate Swaptions	(553)	0	0	(553)
Currency Forward Contracts	(552)	0	1,113	561
TBAs	(33,754)	0	(5,913)	(39,667)
Total	126,303	(9,121)	(16,505)	100,677


	Payments Due by Period
$ in thousands	Total	Less than 1 year	1-3 years	3-5 years	After 5 years

Repurchase agreements	7,851,204	7,851,204	—	—	—
Interest expense on repurchase agreements	1,685	1,685	—	—	—
Total (1)	7,852,889	7,852,889	—	—	—