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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________ 
FORM 10-Q

(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20192020
OR
o☐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
ivr-20200331_g1.jpg
Invesco Mortgage Capital Inc.
(Exact Name of Registrant as Specified in Its Charter)

Maryland26-2749336
(State or Other Jurisdiction of

Incorporation or Organization)
(I.R.S. Employer

Identification No.)
1555 Peachtree Street, N.E., Suite 1800,
Atlanta, Georgia
30309
Atlanta,Georgia30309
(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 ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareIVRNew York Stock Exchange
7.75% Series A Cumulative Redeemable Preferred StockIVRpANew York Stock Exchange
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred StockIVRpBNew York Stock Exchange
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred StockIVRpCNew 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  ý☒    No  o☐
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  ý☒    No  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerýAccelerated filero☐
Non-Accelerated filero☐Smaller reporting companyo☐
Emerging growth companyo☐
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. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o☐    No  ý☒
As of April 30, 2019,May 31, 2020, there were 128,588,493 outstandingwere 164,966,357 outstanding shares of common stock of Invesco Mortgage Capital Inc.


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Explanatory Note
As previously disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2020, filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (this “Quarterly Report”) was delayed due to disruptions in the Company’s day-to-day activities caused by the ongoing COVID-19 pandemic. The original filing deadline for this Quarterly Report was May 11, 2020. The COVID-19 pandemic caused the Company’s support personnel to work from home and resulted in delays in receiving information from the Company's custodian and various counterparties and clearing certain sales trades between the Company and third parties. The Company is relying on the SEC’s Order Under Section 36 of the Securities Exchange Act of 1934, as amended (Release Nos. 34-88318 and 34-88465), to file this Quarterly Report within the 45-day time frame provided by the extension, on or before June 25, 2020.

Table of Contents

INVESCO MORTGAGE CAPITAL INC.
TABLE OF CONTENTS
 
Page
1
Item 1.Page
1
Item 1.
1
Unaudited Condensed Consolidated Balance Sheets as of March 31, 20192020 and December 31, 20182019
1
2
3
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 20192020 and 20182019
4
65
76
Item 2.
35
Item 3.
6561
Item 4.
6865
6966
Item 1.
6966
Item 1A.
6966
Item 2.
69
Item 3.
69
Item 4.
69
Item 5.
69
Item 6.
71



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PART I
ITEM 1.FINANCIAL STATEMENTS
ITEM 1.  FINANCIAL STATEMENTS
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of
As of
$ in thousands except share amountsMarch 31, 2019 December 31, 2018 $ in thousands except share amountsMarch 31, 2020December 31, 2019
ASSETS ASSETS
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $20,544,317 and $17,082,825, respectively)21,127,598
 17,396,642
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $7,485,083 and $21,132,742 respectively)Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $7,485,083 and $21,132,742 respectively)8,044,808  21,771,786  
Cash and cash equivalents78,482
 135,617
Cash and cash equivalents143,291  172,507  
Restricted cash5,025
 —
Restricted cash221,688  116,995  
Due from counterparties13,000
 13,500
Due from counterparties394,424  32,568  
Investment related receivable70,789
 66,598
Investment related receivable (including pledged securities of $534,524 as of March 31, 2020)Investment related receivable (including pledged securities of $534,524 as of March 31, 2020)832,043  67,976  
Derivative assets, at fair value26,580
 15,089
Derivative assets, at fair value—  18,533  
Other assets177,913
 186,059
Other assets (including pledged security of $21,577 and $44,654, respectively)Other assets (including pledged security of $21,577 and $44,654, respectively)140,993  166,180  
Total assets21,499,387
 17,813,505
Total assets9,777,247  22,346,545  
LIABILITIES AND EQUITY   
LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:   Liabilities:
Repurchase agreements16,824,387
 13,602,484
Repurchase agreements6,287,746  17,532,303  
Secured loans1,650,000
 1,650,000
Secured loans1,350,000  1,650,000  
Derivative liabilities, at fair value8,463
 23,390
Derivative liabilities, at fair value302  352  
Dividends and distributions payable60,433
 49,578
Dividends payableDividends payable93,590  74,841  
Investment related payable222,500
 132,096
Investment related payable560,807  99,561  
Accrued interest payable47,100
 37,620
Accrued interest payable8,679  43,998  
Collateral held payable2,273
 18,083
Collateral held payable50,135  170  
Accounts payable and accrued expenses2,384
 1,694
Accounts payable and accrued expenses2,539  1,560  
Due to affiliate10,133
 11,863
Due to affiliate13,068  11,861  
Total liabilities18,827,673
 15,526,808
Total liabilities8,366,866  19,414,646  
Commitments and contingencies (See Note 14):
 
Commitments and contingencies (See Note 14):
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:
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference)135,356
 135,356
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference)135,356  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)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)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; 128,267,497 and 111,584,996 shares issued and outstanding, respectively1,282
 1,115
Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 164,966,357 and 144,256,357 shares issued and outstanding, respectivelyCommon Stock, par value $0.01 per share; 450,000,000 shares authorized; 164,966,357 and 144,256,357 shares issued and outstanding, respectively1,650  1,443  
Additional paid in capital2,642,050
 2,383,532
Additional paid in capital3,239,602  2,892,652  
Accumulated other comprehensive income277,182
 220,813
Accumulated other comprehensive income129,728  288,963  
Retained earnings (distributions in excess of earnings)(812,124) (882,087)Retained earnings (distributions in excess of earnings)(2,523,923) (814,483) 
Total stockholders’ equity2,671,714
 2,286,697
Total stockholders’ equity1,410,381  2,931,899  
Total liabilities and stockholders' equity21,499,387
 17,813,505
Total liabilities and stockholders' equity9,777,247  22,346,545  
The accompanying notes are an integral part of these condensed consolidated financial statements.

1
1

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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended March 31, Three Months Ended March 31,
$ in thousands, except share amounts2019 2018$ in thousands, except share amounts20202019
Interest Income
 
Interest Income
Mortgage-backed and credit risk transfer securities185,492
 149,003
Mortgage-backed and credit risk transfer securities185,536  185,492  
Commercial and other loans1,582
 4,222
Commercial and other loans1,163  1,582  
Total interest income187,074
 153,225
Total interest income186,699  187,074  
Interest Expense   Interest Expense
Repurchase agreements101,875
 59,585
Repurchase agreements79,042  101,875  
Secured loans11,144
 6,927
Secured loans6,646  11,144  
Exchangeable senior notes—
 1,621
Total interest expense113,019
 68,133
Total interest expense85,688  113,019  
Net interest income74,055
 85,092
Net interest income101,011  74,055  
Other Income (loss)
 
Other Income (loss)
Gain (loss) on investments, net268,382
 (160,370)Gain (loss) on investments, net(755,483) 268,382  
Equity in earnings (losses) of unconsolidated ventures692
 896
Equity in earnings (losses) of unconsolidated ventures170  692  
Gain (loss) on derivative instruments, net(201,460) 133,367
Gain (loss) on derivative instruments, net(910,779) (201,460) 
Realized and unrealized credit derivative income (loss), net7,884
 3,165
Realized and unrealized credit derivative income (loss), net(33,052) 7,884  
Net loss on extinguishment of debt—
 (26)Net loss on extinguishment of debt(4,806) —  
Other investment income (loss), net1,029
 3,102
Other investment income (loss), net803  1,029  
Total other income (loss)76,527
 (19,866)Total other income (loss)(1,703,147) 76,527  
Expenses   Expenses
Management fee – related party9,534
 10,221
Management fee – related party10,953  9,534  
General and administrative2,258
 1,756
General and administrative3,103  2,258  
Total expenses11,792
 11,977
Total expenses14,056  11,792  
Net income138,790
 53,249
Net income attributable to non-controlling interest—
 671
Net income attributable to Invesco Mortgage Capital Inc.138,790
 52,578
Net income (loss)Net income (loss)(1,616,192) 138,790  
Dividends to preferred stockholders11,107
 11,107
Dividends to preferred stockholders11,107  11,107  
Net income attributable to common stockholders127,683
 41,471
Earnings per share:  

Net income attributable to common stockholders  
Net income (loss) attributable to common stockholdersNet income (loss) attributable to common stockholders(1,627,299) 127,683  
Earnings (loss) per share:Earnings (loss) per share:
Net income (loss) attributable to common stockholdersNet income (loss) attributable to common stockholders
Basic1.05
 0.37
Basic(10.38) 1.05  
Diluted1.05
 0.37
Diluted(10.38) 1.05  
The accompanying notes are an integral part of these condensed consolidated financial statements.

2
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended March 31,Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Net income138,790
 53,249
Net income (loss)Net income (loss)(1,616,192) 138,790  
Other comprehensive income (loss):   Other comprehensive income (loss):
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net52,349
 (132,317)Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net(186,605) 52,349  
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net10,147
 9,237
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net36,957  10,147  
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense(5,851) (6,539)Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense(10,067) (5,851) 
Currency translation adjustments on investment in unconsolidated venture(276) 312
Currency translation adjustments on investment in unconsolidated venture480  (276) 
Total other comprehensive income (loss)56,369
 (129,307)Total other comprehensive income (loss)(159,235) 56,369  
Comprehensive income (loss)195,159
 (76,058)Comprehensive income (loss)(1,775,427) 195,159  
Less: Comprehensive (income) loss attributable to non-controlling interest—
 959
Less: Dividends to preferred stockholders(11,107) (11,107)Less: Dividends to preferred stockholders(11,107) (11,107) 
Comprehensive income (loss) attributable to common stockholders184,052
 (86,206)Comprehensive income (loss) attributable to common stockholders(1,786,534) 184,052  


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



3
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 20192020 and 20182019
(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 amountsCommon Stock
SharesAmountSharesAmountSharesAmountSharesAmount
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 income (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  —  —  —  —  —  
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, 20205,600,000  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  
              
         
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, 20185,600,000
 135,356
 6,200,000
 149,860
 11,500,000
 278,108
 111,584,996
 1,115
 2,383,532
 220,813
 (882,087) 2,286,697
Net income—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 138,790
 138,790
Other comprehensive income—
 —
 —
 —
 —
 —
 —
 —
 —
 56,369
 —
 56,369
Proceeds from issuance of common stock, net of offering costs—
 —
 —
 —
 —
 —
 16,672,000
 167
 258,386
 —
 —
 258,553
Stock awards—
 —
 —
 —
 —
 —
 10,501
 —
 —
 —
 —
 —
Common stock dividends—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (57,720) (57,720)
Preferred stock dividends—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (11,107) (11,107)
Amortization of equity-based compensation—
 —
 —
 —
 —
 —
 —
 —
 132
 —
 —
 132
Balance at March 31, 20195,600,000
 135,356
 6,200,000
 149,860
 11,500,000
 278,108
 128,267,497
 1,282
 2,642,050
 277,182
 (812,124) 2,671,714

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 amountsCommon Stock
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 2018  5,600,000  135,356  6,200,000  149,860  11,500,000  278,108  111,584,996  1,115  2,383,532  220,813  (882,087) 2,286,697  
Net income—  —  —  —  —  —  —  —  —  —  138,790  138,790  
Other comprehensive income (loss)—  —  —  —  —  —  —  —  —  56,369  —  56,369  
Proceeds from issuance of common stock, net of offering costs—  —  —  —  —  —  16,672,000  167  258,386  —  —  258,553  
Stock awards—  —  —  —  —  —  10,501  —  —  —  —  —  
Common stock dividends—  —  —  —  —  —  —  —  —  —  (57,720) (57,720) 
Preferred stock dividends—  —  —  —  —  —  —  —  —  —  (11,107) (11,107) 
Amortization of equity-based compensation—  —  —  —  —  —  —  —  132  —  —  132  
Balance at March 31, 20195,600,000  135,356  6,200,000  149,860  11,500,000  278,108  128,267,497  1,282  2,642,050  277,182  (812,124) 2,671,714  

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








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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)
For the three months ended March 31, 2019 and 2018
(Unaudited)
           Attributable to Common Stockholders      
         
Additional
Paid in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
(Distributions
in excess of
earnings)
 Total
Stockholders’
Equity		 
Non-
Controlling
Interest
  
 
Series A
Preferred Stock
 
Series B
Preferred Stock
 Series C
Preferred Stock		    
$ in thousands 
except
share amounts
   Common Stock 
Total
Equity
Shares Amount Shares Amount Shares Amount Shares Amount      
Balance at December 31, 20175,600,000
 135,356
 6,200,000
 149,860
 11,500,000
 278,108
 111,624,159
 1,116
 2,384,356
 261,029
 (579,334) 2,630,491
 26,387
 2,656,878
Net income—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 52,578
 52,578
 671
 53,249
Other comprehensive loss—
 —
 —
 —
 —
 —
 —
 —
 —
 (127,677) —
 (127,677) (1,630) (129,307)
Stock awards—
 —
 —
 —
 —
 —
 12,564
 —
 —
 —
 —
 —
 —
 —
Common stock dividends—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (46,887) (46,887) —
 (46,887)
Common unit dividends—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (599) (599)
Preferred stock dividends—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (11,107) (11,107) —
 (11,107)
Amortization of equity-based compensation—
 —
 —
 —
 —
 —
 —
 —
 127
 —
 —
 127
 2
 129
Rebalancing of ownership percentage of non-controlling interest—
 —
 —
 —
 —
 —
 —
 —
 143
 —
 —
 143
 (143) —
Balance at March 31, 20185,600,000
 135,356
 6,200,000
 149,860
 11,500,000
 278,108
 111,636,723
 1,116
 2,384,626
 133,352
 (584,750) 2,497,668
 24,688
 2,522,356
The accompanying notes are an integral part of these condensed consolidated financial statements.


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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Cash Flows from Operating Activities   Cash Flows from Operating Activities
Net income138,790
 53,249
Adjustments to reconcile net income to net cash provided by operating activities:   
Net income (loss)Net income (loss)(1,616,192) 138,790  
Adjustments to reconcile net income (loss) to net cash provided by operating activities: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), net3,185
 12,663
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net10,658  3,185  
Realized and unrealized (gain) loss on derivative instruments, net205,969
 (145,479)Realized and unrealized (gain) loss on derivative instruments, net922,703  205,969  
Realized and unrealized (gain) loss on credit derivatives, net(2,534) 2,468
Realized and unrealized (gain) loss on credit derivatives, net37,770  (2,534) 
(Gain) loss on investments, net(268,382) 160,370
(Gain) loss on investments, net755,483  (268,382) 
(Gain) loss from investments in unconsolidated ventures in excess of distributions received(692) (352)(Gain) loss from investments in unconsolidated ventures in excess of distributions received222  (692) 
Other amortization(5,719) (6,265)Other amortization(9,936) (5,719) 
Net loss on extinguishment of debt—
 26
Net loss on extinguishment of debt4,806  —  
(Gain) loss on foreign currency transactions, net—
 (1,800)
Changes in operating assets and liabilities:   Changes in operating assets and liabilities:
(Increase) decrease in operating assets(10,015) 1,334
(Increase) decrease in operating assets37,955  (10,015) 
Increase in operating liabilities7,758
 562
Increase (decrease) in operating liabilitiesIncrease (decrease) in operating liabilities(33,431) 7,758  
Net cash provided by operating activities68,360
 76,776
Net cash provided by operating activities110,038  68,360  
Cash Flows from Investing Activities   Cash Flows from Investing Activities
Purchase of mortgage-backed and credit risk transfer securities(4,340,536) (298,859)Purchase of mortgage-backed and credit risk transfer securities(4,444,744) (4,340,536) 
(Contributions to) distributions from investments in unconsolidated ventures, net299
 (1,532)(Contributions to) distributions from investments in unconsolidated ventures, net1,168  299  
Change in other assets1,154
 —
Change in other assets19,269  1,154  
Principal payments from mortgage-backed and credit risk transfer securities300,222
 488,123
Principal payments from mortgage-backed and credit risk transfer securities636,498  300,222  
Proceeds from sale of mortgage-backed and credit risk transfer securities734,834
 —
Proceeds from sale of mortgage-backed and credit risk transfer securities16,238,252  734,834  
Proceeds from sale of credit derivativesProceeds from sale of credit derivatives2,283  —  
Settlement (termination) of futures, currency forwards and interest rate swaps, net(232,387) 113,578
Settlement (termination) of futures, currency forwards and interest rate swaps, net(904,220) (232,387) 
Net change in due from counterparties and collateral held payable(14,060) 14,853
Net change in due from counterparties and collateral held payable on derivative instrumentsNet change in due from counterparties and collateral held payable on derivative instruments4,849  (14,060) 
Principal payments from commercial loans held-for-investment7,128
 10,042
Principal payments from commercial loans held-for-investment136  7,128  
Origination and advances of commercial loans, net of origination fees—
 (698)
Net cash (used in) provided by investing activities(3,543,346) 325,507
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities11,553,491  (3,543,346) 
Cash Flows from Financing Activities   Cash Flows from Financing Activities
Proceeds from issuance of common stock258,966
 —
Proceeds from issuance of common stock347,299  258,966  
Principal repayments of secured loansPrincipal repayments of secured loans(300,000) —  
Proceeds from repurchase agreements28,316,732
 35,711,164
Proceeds from repurchase agreements44,017,958  28,316,732  
Principal repayments of repurchase agreements(25,094,829) (35,880,828)Principal repayments of repurchase agreements(55,266,696) (25,094,829) 
Extinguishment of exchangeable senior notes—
 (143,433)
Net change in due from counterparties and collateral held payable on repurchase agreementsNet change in due from counterparties and collateral held payable on repurchase agreements(311,732) —  
Payments of deferred costs(21) (76)Payments of deferred costs(40) (21) 
Payments of dividends and distributions(57,972) (58,587)
Payments of dividendsPayments of dividends(74,841) (57,972) 
Net cash provided by (used in) financing activities3,422,876
 (371,760)Net cash provided by (used in) financing activities(11,588,052) 3,422,876  
Net change in cash, cash equivalents and restricted cash(52,110) 30,523
Net change in cash, cash equivalents and restricted cash75,477  (52,110) 
Cash, cash equivalents and restricted cash, beginning of period135,617
 89,001
Cash, cash equivalents and restricted cash, beginning of period289,502  135,617  
Cash, cash equivalents and restricted cash, end of period83,507
 119,524
Cash, cash equivalents and restricted cash, end of period364,979  83,507  
Supplement Disclosure of Cash Flow Information   Supplement Disclosure of Cash Flow Information
Interest paid109,392
 73,811
Interest paid131,074  109,392  
Non-cash Investing and Financing Activities Information   Non-cash Investing and Financing Activities Information
Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities62,496
 (123,080)Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities(149,648) 62,496  
Dividends and distributions declared not paid60,433
 50,199
Net change in investment related payable (receivable)(95,250) 80,688
Dividends declared not paidDividends declared not paid93,590  60,433  
Increase in Agency CMBS purchase commitmentsIncrease in Agency CMBS purchase commitments410,654  90,291  
Net change in investment related receivable (payable) excluding Agency CMBS purchase commitmentsNet change in investment related receivable (payable) excluding Agency CMBS purchase commitments(760,217) (4,959) 
Offering costs not paid(413) —
Offering costs not paid(273) (413) 
Net change in repurchase agreements, not settledNet change in repurchase agreements, not settled(625) —  
The accompanying notes are an integral part of these condensed consolidated financial statements.

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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Operations
Invesco Mortgage Capital Inc. (the "Company", or "we") is a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities ("MBS") and other mortgage-related assets. We are externally managed and advised by Invesco Advisers, Inc. (our "Manager"), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd. ("Invesco"), a leading independent global investment management firm. We conduct our business through IAS Operating Partnership LP (the "Operating Partnership") and have one1 operating segment. Prior to November 30, 2018, a wholly-owned subsidiary of Invesco owned 1.3% of the Operating Partnership. See Note 15 - "Non-Controlling Interest - Operating Partnership" of our Annual Report on Form 10-K for the year ended December 31, 2018 for information regarding redemption of Operating Partnership Units ("OP Units") previously held by Invesco.
We primarily investhave historically invested in:
•Residential mortgage-backed securities ("RMBS") that are guaranteed by a U.S. government agency such as the Government National Mortgage Association ("Ginnie Mae"), or a federally chartered corporation such as the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac") (collectively "Agency RMBS");
•Commercial mortgage-backed securities (“CMBS”) that are 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");
•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation ("non-Agency RMBS");
•CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“("non-Agency CMBS”CMBS");
•Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");
•Residential and commercial mortgage loans; and
•Other real estate-related financing agreements.
We elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986 commencing with our taxable year ended December 31, 2009.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 exclusion from the "Investment Company" definition under the Investment Company Act of 1940.
During the three months ended March 31, 2020, we experienced unprecedented market conditions as a result of the global COVID-19 pandemic that resulted in a material adverse change in our financial condition. We recorded a $1.6 billion net loss attributable to stockholders and our stockholders' equity declined from $2.9 billion as of December 31, 2019 to $1.4 billion as of March 31, 2020.
Due to significant spread widening in both Agency and non-Agency securities, we received an unusually high number of margin calls from counterparties in the latter half of March 2020. We were unable to meet margin calls as of March 23, 2020 and were not in compliance with the terms of our various borrowings arrangements as of March 31, 2020 as described in Note 7 - "Borrowings". To generate liquidity and reduce leverage, we sold MBS and GSE CRTs for cash proceeds of $16.2 billion and repaid $11.2 billion of our repurchase agreements during the quarter ended March 31, 2020. Our investment portfolio decreased from $21.9 billion as of December 31, 2019 to $8.1 billion as of March 31, 2020 primarily due to these asset sales. We also terminated our entire interest rate swap portfolio as our exposure to interest rate risk decreased as we sold Agency assets.
We have continued to focus on generating liquidity and reducing leverage in the second quarter of 2020. Between April 1, 2020 and May 31, 2020, we sold additional MBS and GSE CRTs with a fair value of $6.2 billion at March 31, 2020 for cash proceeds of $5.9 billion and our loan participation interest for cash proceeds of $21.6 million. Our investment portfolio decreased from $8.1 billion as of March 31, 2020 to approximately $1.6 billion, excluding cash and Agency CMBS purchase commitments, as of May 31, 2020 primarily due to these asset sales. We repaid all of our repurchase agreements and $512.5 million of Federal Home Loan Bank of Indianapolis "FHLBI" secured loans with proceeds from these asset sales and the return of cash margin previously pledged on our repurchase agreements. As of the filing date of this Quarterly Report, the balance of our secured loans is $837.5 million. For further details of events between March 31, 2020 and the filing date of this Quarterly Report see Note 15 - "Subsequent Events".
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While the Federal Reserve has taken a number of proactive measures to bolster liquidity in the second quarter of 2020, we expect market conditions for the mortgage REIT industry to continue to be challenging due to the uncertainty around the duration and ultimate impact of the COVID-19 pandemic. The COVID-19 pandemic caused our support personnel to transition to a remote workforce beginning in March 2020 and resulted in delays in receiving information from our custodian and various counterparties and clearing certain sales trades. In turn, this delayed the filing of this Quarterly Report. Our Manager has provided our investment team and support personnel with access to all systems necessary to fulfill their responsibilities and are in constant communication with one another and our external professional advisors.
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, 2018.2019.
Our condensed consolidated financial statements have been prepared in accordance with 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.
Reclassifications
Our condensed consolidated balance sheet for the year ended December 31, 2018 presented in this Form 10-Q includes a reclassification of Commercial Loans, held-for-investment to Other assets to conform to our current period presentation. See Note 5 - "Other Assets" for further information. 
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 the condensed consolidated financial statements and

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accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income recognition on mortgage-backed and credit risk transfer securities provisionand allowances for loan losses and other-than-temporary impairment charges.credit losses. Actual results may differ from those estimates.
Significant Accounting Policies
There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2018 except2019 other than as discussed below.
Mortgage-Backed and Credit Risk Transfer Securities
Allowances for Credit Losses on Available-For-Sale Securities
We are not required to measure expected credit losses for situations in which historic credit loss information, adjusted for current conditions and reasonable and supportable forecasts, results in an expectation that nonpayment of the implementationamortized cost basis is zero. We consider our Agency portfolio to have zero loss expectation because (i) there have been no historical credit losses, (ii) full and timely payment of principal and interest is guaranteed by the GSEs and (iii) the yields, while not risk free, generally trade based on prepayment and liquidity risk as opposed to credit risk. Our available-for-sale GSE CRTs are hybrid financial instruments consisting of a debt host contract and an embedded credit derivative. The embedded credit derivative is carried at fair value with changes in fair value recorded in earnings.
For non-Agency RMBS and non-Agency CMBS, we use a discounted cash flow method to estimate and recognize an allowance for credit losses. We calculate the allowance for credit losses as the difference between prepayment adjusted contractual cash flows without credit losses and expected cash flows discounted at the effective interest rate used to recognize interest income on the investment. In developing an expectation of credit losses, we use internal models that analyze the loans underlying each investment and evaluate factors including, but not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration. We place reliance on these internal models in determining credit quality.
We record an allowance for credit losses as a contra-asset on the condensed consolidated balance sheets and a provision for credit losses in the condensed consolidated statements of operations. Credit losses are accreted into earnings over time at the effective interest rate used to recognize interest income. Subsequent favorable or adverse changes in the amount of expected credit losses are recognized immediately in earnings. If the allowance for credit losses has been reduced to zero,we reflect the remaining favorable changes as a prospective adjustment to the effective interest rate of the investment. The allowance for credit losses is limited to the amount by which the investment’s amortized cost exceeds fair value. When the allowance for credit losses is limited, the effective interest rate used to recognize interest income and accrete credit losses is prospectively adjusted. We do not record an allowance for credit losses when an investment’s fair value exceeds its amortized cost. Recoveries of amounts previously written off relating to improvements in cash flows are recognized in earnings when received.
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We record provisions for credit losses, reductions in provisions for credit losses, accretion of credit losses, and recoveries of amounts previously written off within gain (loss) on investments, net in our condensed consolidated statements of operations.
When we determine that we intend to sell, or more likely than not will be required to sell, an available-for-sale security in an unrealized loss position before we recover its amortized cost, we write off any allowance for credit losses and write down the investment’s amortized costto its fair value. We record the write off of the allowance for credit losses and write down of the available-for-sale security withingain (loss) on investments, net in our condensed consolidated statements of operations.
We present accrued interest receivable separately from our investment portfolio on our condensed consolidated balance sheets. We do not estimate an allowance for credit losses on accrued interest receivable because we write off accrued interest receivable as a reduction to interest income if it is not received when due.
Interest Income Recognition
Mortgage-Backed Securities
Interest income on MBS is accrued based on the outstanding principal or notional balance of the securities and their contractual terms. Premiums or discounts are amortized or accreted into interest income over the life of the investment using the effective interest method.
Interest income on our MBS where we may not recover substantially all of our initial investment is based on estimated future cash flows. We estimate future expected cash flows at the time of purchase and determine the effective interest rate based on these estimated cash flows and our purchase price. Over the life of the investments, we update these estimated future cash flows and compute a revised yield based on the current amortized cost of the investment. In situations where an allowance for credit losses is limited by the fair value of the investment, we compute the yield as the rate that equates expected future cash flows to the current fair value of the investment. In estimating these future cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including but not limited to the rate and timing of principal payments (prepayments, repurchases, defaults and liquidations), the pass through or coupon rate, and interest rate fluctuations. These uncertainties and contingencies are difficult to predict and are subject to future events that may impact our estimate and our interest income. Changes in our original or most recent cash flow projections may result in a prospective change in interest income recognized on these securities, or the amortized cost of these securities. For non-Agency RMBS not of high credit quality, when actual cash flows vary from expected cash flows, the difference is recorded as an adjustment to the amortized cost of the security, unless those changes relate to credit losses that will be reflected in an allowance for credit losses, and the security's yield is revised prospectively.
For Agency RMBS and Agency CMBS that cannot be prepaid in such a way that we would not recover substantially all of our initial investment, interest income recognition is based on contractual cash flows. We do not estimate prepayments in applying the effective interest method.
Fair Value Measurements
As of January 1, 2020, we report our commercial loan at fair value as determined by an independent pricing service. The pricing service values the loan using a discounted cash flow analysis. The yield used in the discounted cash flow analysis is determined by comparing the features of the loan to the interest rates and terms required by lenders in the new accountingloan origination market for similar loans and the yield required by investors acquiring mezzanine loans in the secondary market and a comparison of current market and collateral conditions to those present at origination. We discontinued reporting our commercial loan at amortized cost because we elected the fair value option for this loan in connection with our adoption of the new guidance for stock-based payments to non-employeesreporting credit losses discussed below.
Accounting Pronouncements Recently Adopted
EffectiveOn January 1, 2019,2020, we adopted the accounting guidance that aligns the measurement and classification for stock-based payments to non-employees with the guidance for stock-based payments to employees. Under the new guidance, the measurement of equity-classified non-employee awards is fixed at the grant date. The implementation of the guidance did not have a material impact on our financial statements.
Pending Accounting Pronouncements
In June 2016, new accounting guidance was issued for reportingchanges how entities report credit losses for assets measured at amortized cost and available-for-sale securities. The new guidance significantly changes how entities will measure credit losses for most financial assets, including loans, that are not measured at fair value through net income. The guidance replaces the existing “incurred loss” model with an “expected loss” model for instruments measured at amortized cost and requirerequires entities to record credit allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do todaypreviously did under the other-than-temporary impairment model. The new guidance also simplifies the accounting model for purchased credit-impaired debt securities and loans.loans and requires that entities record an adjustment to retained earnings on January 1, 2020 for the cumulative effect of adopting the new guidance. We arewere not required to adopt the new guidance in the first quarter of 2020 by recordingrecord a cumulative effect adjustment to retained earnings because all of our purchased credit-impaired securities were in an unrealized gain position as of the implementation date.
The new guidance specifically excludes available-for-sale securities measured at fair value through net income. We elected the fair value option for all MBS purchased on or after September 1, 2016 and GSE CRTs purchased on or after August 24, 2015. Accordingly, the impact of the new guidance on accounting for our debt securities is limited to those securities we purchased prior to election of the fair value option and held on January 1, 2020. For further information on the composition of
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our investment portfolio see Note 4 - "Mortgage Backed and Credit Risk Transfer Securities". During the three months ended March 31, 2020, we recorded $78.8 million of impairment on non-Agency securities that we intend to sell or more likely than not will be required to sell before we recover the amortized cost basis of the security. We recorded the impairment within gain (loss) on investments, net in our condensed consolidated statements of operations. As of March 31, 2020, we have not recorded a credit loss allowance on any of our securities.
We had one commercial loan as of December 31, 2019 that was measured at amortized cost. We implemented the new guidance for this loan by electing the fair value option and recording a cumulative effect adjustment to increase retained earnings by $342,000 on January 1, 2020. We recognized $1.7 million of unrealized losses on our commercial loan in our condensed consolidated statement of operations during the three months ended March 31, 2020.
Accounting Pronouncements Recently Issued
In March 2020, new accounting guidance was issued for evaluating the effects of reference rate reform on financial reporting. The new guidance provides temporary optional expedients and exceptions to U.S. GAAP for contract modifications, hedge accounting and other relationships that reference London Interbank Overnight Financing Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform. The guidance may be adopted on or after March 12, 2020 and is only effective for the period from March 12, 2020 through December 31, 2022. We have not yet adopted this guidance and are currently evaluating what impact the potential impacts of the new guidance and proposed amendments to the new guidancewill have on our consolidated financial statements.
Note 3 – Variable Interest Entities ("VIEs")
Our maximum risk of loss in VIEs in which we are not the primary beneficiary at March 31, 20192020 is presented in the table below.
$ in thousandsCarrying Amount Company's Maximum Risk of Loss$ in thousandsCarrying AmountCompany's Maximum Risk of Loss
Non-Agency CMBS3,455,806
 3,455,806
Non-Agency CMBS2,869,051  2,869,051  
Non-Agency RMBS1,186,896
 1,186,896
Non-Agency RMBS568,081  568,081  
Investments in unconsolidated ventures24,129
 24,129
Investments in unconsolidated ventures21,088  21,088  
Total4,666,831
 4,666,831
Total3,458,220  3,458,220  
Refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities" and Note 5 - "Other Assets" for additional details regarding these investments.

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Note 4 – Mortgage-Backed and Credit Risk Transfer Securities
As discussed in Note 1 - "Organization and Business Operations", we sold MBS and GSE CRTs for cash proceeds of $16.2 billion during the three months ended March 31, 2020 to generate liquidity and reduce leverage given unprecedented market conditions as a result of the global COVID-19 pandemic. Between April 1, 2020 and May 31, 2020, we sold additional MBS and GSE CRTs with a fair value of $6.2 billion as of March 31, 2020 as discussed in Note 15 - "Subsequent Events".
The following tables summarize our mortgage-backed securities ("MBS")MBS and GSE CRT portfolio by asset type as of March 31, 20192020 and December 31, 2018.2019.
March 31, 2019           
March 31, 2020March 31, 2020
$ in thousands
Principal/ Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
$ in thousandsPrincipal/ Notional
Balance		Unamortized
Premium
(Discount)		Amortized
Cost		Unrealized
Gain/
(Loss), net		Fair
Value
Period-
end
Weighted
Average
Yield (1)
Agency RMBS:           Agency RMBS:
15 year fixed-rate343,116
 2,595
 345,711
 6,391
 352,102
 3.34%15 year fixed-rate67,123  767  67,890  3,276  71,166  3.29 %
30 year fixed-rate12,264,517
 386,145
 12,650,662
 65,974
 12,716,636
 3.66%30 year fixed-rate1,318,576  45,032  1,363,608  57,554  1,421,162  3.39 %
ARM*
6,215
 184
 6,399
 5
 6,404
 3.64%
Hybrid ARM*170,397
 3,602
 173,999
 (478) 173,521
 3.11%
Hybrid ARM*
Hybrid ARM*
2,557  —  2,557  115  2,672  3.28 %
Total Agency RMBS pass-through12,784,245
 392,526
 13,176,771
 71,892
 13,248,663
 3.64%Total Agency RMBS pass-through1,388,256  45,799  1,434,055  60,945  1,495,000  3.39 %
Agency-CMO (2)
913,574
 (585,878) 327,696
 (545) 327,151
 3.65%
Agency-CMO (2)
532,411  (247,963) 284,448  16,087  300,535  3.29 %
Agency CMBS1,898,205
 35,961
 1,934,166
 67,387
 2,001,553
 3.48%
Non-Agency CMBS (3)
4,127,880
 (737,241) 3,390,639
 65,167
 3,455,806
 5.08%
Non-Agency RMBS (4)(5)(6)
2,774,428
 (1,700,612) 1,073,816
 113,080
 1,186,896
 6.89%
GSE CRT (7)
823,578
 19,823
 843,401
 64,128
 907,529
 3.16%
Agency CMBS(3)
Agency CMBS(3)
2,070,199  32,398  2,102,597  175,430  2,278,027  2.90 %
Non-Agency CMBS (4)
Non-Agency CMBS (4)
3,889,234  (795,998) 3,093,236  (224,185) 2,869,051  6.13 %
Non-Agency RMBS (5)(6)(7)
Non-Agency RMBS (5)(6)(7)
1,892,459  (1,340,469) 551,990  16,091  568,081  7.06 %
GSE CRT (8)
GSE CRT (8)
682,183  13,360  695,543  (161,429) 534,114  3.25 %
Total23,321,910
 (2,575,421) 20,746,489
 381,109
 21,127,598
 4.01%Total10,454,742  (2,292,873) 8,161,869  (117,061) 8,044,808  4.53 %
* Adjustable-rate mortgage ("ARM")
(1)Period-end weighted average yield is based on amortized cost as of March 31, 2019 and incorporates future prepayment and loss assumptions.
(2)Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 67.8% of principal/notional balance, 10.3% of amortized cost and 9.7% of fair value.
(3)Non-Agency CMBS includes interest-only securities which represent 14.6% of principal/notional balance, 0.4% of amortized cost and 0.4% of fair value.
(4)Non-Agency RMBS is 54.9% fixed rate, 39.7% variable rate, and 5.4% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying ARM and Hybrid ARM loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.
(5)Of the total discount in non-Agency RMBS, $140.8 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(6)Non-Agency RMBS includes interest-only securities ("non-Agency IO") which represent 54.6% of principal/notional balance, 2.2% of amortized cost and 2.1% of fair value.
(7)GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.

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

(2)Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 49.5% of principal/notional balance, 4.9% of amortized cost and 4.9% of fair value.
(3)Includes Agency CMBS purchase commitments with a fair value of approximately $507.2 million.
(4)Non-Agency CMBS includes interest-only securities which represent 14.9% of principal/notional balance, 0.3% of amortized cost and 0.4% of fair value.
(5)Non-Agency RMBS is 61.9% fixed rate, 34.8% variable rate, and 3.3% 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.
(6)Of the total discount in non-Agency RMBS, $72.6 million is non-accretable (calculated using the principal/notional balance) based on estimated future cash flows of the securities.
(7)Non-Agency RMBS includes interest-only securities ("non-Agency IO") which represent 65.6% of principal/notional balance, 2.7% of amortized cost and 1.0% of fair value.
(8)GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.


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December 31, 2018          
December 31, 2019December 31, 2019
$ in thousands
Principal/Notional
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Period-
end
Weighted
Average
Yield (1)
$ in thousandsPrincipal/Notional
Balance		Unamortized
Premium
(Discount)		Amortized
Cost		Unrealized
Gain/
(Loss), net		Fair
Value
Period-
end
Weighted
Average
Yield (1)
Agency RMBS:           Agency RMBS:
15 year fixed-rate417,233
 5,077
 422,310
 1,944
 424,254
 3.27%15 year fixed-rate280,426  1,666  282,092  10,322  292,414  3.34 %
30 year fixed-rate9,599,301
 298,693
 9,897,994
 (125,225) 9,772,769
 3.55%30 year fixed-rate9,911,339  308,427  10,219,766  304,454  10,524,220  3.62 %
ARM105,453
 350
 105,803
 (56) 105,747
 2.74%
Hybrid ARM548,133
 13,425
 561,558
 (7,357) 554,201
 2.80%Hybrid ARM55,024  602  55,626  1,267  56,893  3.46 %
Total Agency RMBS pass-through10,670,120
 317,545
 10,987,665
 (130,694) 10,856,971
 3.49%Total Agency RMBS pass-through10,246,789  310,695  10,557,484  316,043  10,873,527  3.61 %
Agency-CMO (2)
907,862
 (631,180) 276,682
 (8,991) 267,691
 3.61%
Agency-CMO (2)
883,122  (467,840) 415,282  12,230  427,512  3.54 %
Agency CMBS973,122
 15,058
 988,180
 14,330
 1,002,510
 3.54%
Non-Agency CMBS (3)
4,024,715
 (727,307) 3,297,408
 (10,949) 3,286,459
 5.05%
Non-Agency RMBS (4)(5)(6)
2,800,335
 (1,748,223) 1,052,112
 111,570
 1,163,682
 7.24%
GSE CRT (7)
738,529
 21,259
 759,788
 59,541
 819,329
 3.10%
Agency CMBS (3)
Agency CMBS (3)
4,561,276  75,299  4,636,575  131,355  4,767,930  3.01 %
Non-Agency CMBS (4)
Non-Agency CMBS (4)
4,464,525  (772,295) 3,692,230  131,244  3,823,474  5.16 %
Non-Agency RMBS (5)(6)(7)
Non-Agency RMBS (5)(6)(7)
2,340,119  (1,487,603) 852,516  103,155  955,671  6.98 %
GSE CRT (8)
GSE CRT (8)
858,244  19,945  878,189  45,483  923,672  2.78 %
Total20,114,683
 (2,752,848) 17,361,835
 34,807
 17,396,642
 4.00%Total23,354,075  (2,321,799) 21,032,276  739,510  21,771,786  3.85 %
 
(1)Period-end weighted average yield is based on amortized cost as of December 31, 2018 and incorporates future prepayment and loss assumptions.
(2)
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 73.6% of principal (notional) balance, 13.5%of amortized cost and 12.4% of fair value.
(1)Period-end weighted average yield is based on amortized cost as of December 31, 2019 and incorporates future prepayment and loss assumptions.
(2)Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent 56.3% of principal (notional) balance, 6.4%of amortized cost and 6.4% of fair value.
(3)Includes Agency CMBS purchase commitments with a fair value of approximately $96.2 million .
(4)Non-Agency CMBS includes interest-only securities which represent 13.1% of principal/notional balance, 0.3% of amortized cost and 0.3% of fair value.
(5)Non-Agency RMBS is 37.0% variable rate, 57.7% fixed rate, and 5.3% 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.
(6)Of the total discount in non-Agency RMBS, $120.2 million is non-accretable (calculated using the principal/notional balance) based on estimated future cash flows of the securities.
(7)Non-Agency RMBS includes interest-only securities, which represent 56.2% of principal/notional balance, 1.9% of amortized cost and 1.3% of fair value.
(8)GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
(3)Non-Agency CMBS includes interest-only securities which represent 15.0% of principal/notional balance, 0.4% of amortized cost and 0.5% of fair value.
(4)Non-Agency RMBS is 43.5% variable rate, 50.7% fixed rate, and 5.8% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying ARM and Hybrid ARM loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.
(5)Of the total discount in non-Agency RMBS, $145.6 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities.
(6)Non-Agency RMBS includes interest-only securities, which represent 55.4% of principal/notional balance, 2.3% of amortized cost and 2.4% of fair value.
(7)GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.
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 March 31, 20192020 and December 31, 2018.2019. We have elected the fair value option for all of our RMBS IOs,interest-only securities, our MBS purchased on or after September 1, 2016 and our GSE CRTs purchased on or after August 24, 2015. As of March 31, 20192020 and December 31, 2018,2019, approximately 76%65% and 67%80%, respectively, of our MBS and GSE CRTs are accounted for under the fair value option.
March 31, 2019 December 31, 2018March 31, 2020December 31, 2019
$ in thousandsAvailable-for-sale Securities Securities under Fair Value Option 
Total
Fair Value
 Available-for-sale Securities Securities under Fair Value Option Total
Fair Value		$ in thousandsAvailable-for-sale SecuritiesSecurities under Fair Value OptionTotal
Fair Value		Available-for-sale SecuritiesSecurities under Fair Value OptionTotal
Fair Value
Agency RMBS:           Agency RMBS:
15 year fixed-rate135,169
 216,933
 352,102
 204,347
 219,907
 424,254
15 year fixed-rate23,652  47,514  71,166  98,666  193,748  292,414  
30 year fixed-rate918,778
 11,797,858
 12,716,636
 1,093,070
 8,679,699
 9,772,769
30 year fixed-rate237,581  1,183,581  1,421,162  754,590  9,769,630  10,524,220  
ARM6,404
 —
 6,404
 105,747
 —
 105,747
Hybrid ARM141,320
 32,201
 173,521
 521,199
 33,002
 554,201
Hybrid ARM2,672  —  2,672  31,522  25,371  56,893  
Total RMBS Agency pass-through1,201,671
 12,046,992
 13,248,663
 1,924,363
 8,932,608
 10,856,971
Total RMBS Agency pass-through263,905  1,231,095  1,495,000  884,778  9,988,749  10,873,527  
Agency-CMO166,730
 160,421
 327,151
 168,385
 99,306
 267,691
Agency-CMO144,405  156,130  300,535  146,733  280,779  427,512  
Agency CMBS—
 2,001,553
 2,001,553
 —
 1,002,510
 1,002,510
Agency CMBS—  2,278,027  2,278,027  —  4,767,930  4,767,930  
Non-Agency CMBS2,144,187
 1,311,619
 3,455,806
 2,153,403
 1,133,056
 3,286,459
Non-Agency CMBS1,765,868  1,103,183  2,869,051  2,150,991  1,672,483  3,823,474  
Non-Agency RMBS916,158
 270,738
 1,186,896
 961,445
 202,237
 1,163,682
Non-Agency RMBS368,663  199,418  568,081  715,479  240,192  955,671  
GSE CRT579,142
 328,387
 907,529
 586,231
 233,098
 819,329
GSE CRT238,654  295,460  534,114  507,445  416,227  923,672  
Total5,007,888
 16,119,710
 21,127,598
 5,793,827
 11,602,815
 17,396,642
Total2,781,495  5,263,313  8,044,808  4,405,426  17,366,360  21,771,786  
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The components of the carrying value of our MBS and GSE CRT portfolio at March 31, 20192020 and December 31, 20182019 are presented below.
March 31, 2020
$ in thousandsMBS and GSE CRT SecuritiesInterest-Only SecuritiesTotal
Principal/notional balance8,369,799  2,084,943  10,454,742  
Unamortized premium108,948  —  108,948  
Unamortized discount(356,152) (2,045,669) (2,401,821) 
Gross unrealized gains (1)
291,151  3,144  294,295  
Gross unrealized losses (1)
(401,179) (10,177) (411,356) 
Fair value8,012,567  32,241  8,044,808  
 March 31, 2019
$ in thousandsMBS and GSE CRT Securities Interest-Only Securities Total
Principal/ notional balance20,734,762
 2,587,148
 23,321,910
Unamortized premium488,161
 —
 488,161
Unamortized discount(545,248) (2,518,334) (3,063,582)
Gross unrealized gains (1)
447,903
 5,613
 453,516
Gross unrealized losses (1)
(67,022) (5,385) (72,407)
Fair value21,058,556
 69,042
 21,127,598

December 31, 2019
$ in thousandsMBS and GSE CRT SecuritiesInterest-Only SecuritiesTotal
Principal/notional balance20,957,410  2,396,665  23,354,075  
Unamortized premium440,503  —  440,503  
Unamortized discount(419,983) (2,342,319) (2,762,302) 
Gross unrealized gains (1)
807,324  4,782  812,106  
Gross unrealized losses (1)
(66,064) (6,532) (72,596) 
Fair value21,719,190  52,596  21,771,786  
 December 31, 2018
$ in thousandsMBS and GSE CRT Securities Interest-Only Securities Total
Principal/ notional balance17,442,367
 2,672,316
 20,114,683
Unamortized premium395,907
 —
 395,907
Unamortized discount(549,988) (2,598,767) (3,148,755)
Gross unrealized gains (1)
238,579
 7,448
 246,027
Gross unrealized losses (1)
(204,664) (6,556) (211,220)
Fair value17,322,201
 74,441
 17,396,642
(1)Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for as derivatives or 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 months ended March 31, 2020 and 2019 is provided below within this Note 4.
(1)Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for as derivatives or 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 months ended March 31, 2019 and 2018 is provided below within this Note 4.
The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of March 31, 20192020 and December 31, 20182019. 
$ in thousandsMarch 31, 2020December 31, 2019
Less than one year320,834  268,536  
Greater than one year and less than five years3,638,676  7,836,620  
Greater than or equal to five years4,085,298  13,666,630  
Total8,044,808  21,771,786  
$ in thousandsMarch 31, 2019 December 31, 2018
Less than one year49,768
 110,020
Greater than one year and less than five years5,188,229
 3,508,100
Greater than or equal to five years15,889,601
 13,778,522
Total21,127,598
 17,396,642



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The following tables present the estimated fair value and gross unrealized losses of our MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018.
March 31, 2019
  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:                 
15 year fixed-rate8,398
 (28) 21
 35,070
 (165) 25
 43,468
 (193) 46
30 year fixed-rate1,286
 (11) 4
 4,448,849
 (50,925) 146
 4,450,135
 (50,936) 150
ARM—
 —
 —
 2,760
 (60) 2
 2,760
 (60) 2
Hybrid ARM3,059
 (6) 1
 101,210
 (1,595) 24
 104,269
 (1,601) 25
Total Agency RMBS pass-through (1)
12,743
 (45) 26
 4,587,889
 (52,745) 197
 4,600,632
 (52,790) 223
Agency-CMO (2)
9,749
 (3,276) 16
 109,177
 (3,380) 20
 118,926
 (6,656) 36
Non-Agency CMBS (3)
94,622
 (538) 9
 478,174
 (10,226) 41
 572,796
 (10,764) 50
GSE CRT (4)
62,965
 (381) 4
 —
 —
 —
 62,965
 (381) 4
Non-Agency RMBS (5)
63,102
 (1,225) 13
 93,291
 (591) 15
 156,393
 (1,816) 28
Total243,181
 (5,465) 68
 5,268,531
 (66,942) 273
 5,511,712
 (72,407) 341
(1)Includes Agency RMBS with a fair value of $4.2 billion for which the fair value option has been elected. Such securities have unrealized losses of $47.0 million.
(2)Includes Agency IO and Agency-CMO with fair value of $13.9 million and $17.9 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $4.6 million and $64,000, respectively.
(3)Includes non-Agency CMBS with a fair value of $323.9 million for which the fair value option has been elected. Such securities have unrealized losses of $3.1 million.
(4)Fair value option has been elected for all GSE CRT that are in an unrealized loss position.
(5)Includes non-Agency RMBS and non-Agency IO with a fair value of $6.1 million and $4.9 million, respectively for which the fair value option has been elected. Such securities have unrealized losses of $223,000 and $821,000, respectively.


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December 31, 2018
  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:                 
15 year fixed-rate86,241
 (814) 50
 16,660
 (189) 22
 102,901
 (1,003) 72
30 year fixed-rate3,966,347
 (49,182) 158
 2,846,090
 (94,716) 95
 6,812,437
 (143,898) 253
ARM2,632
 (28) 1
 49,954
 (785) 10
 52,586
 (813) 11
Hybrid ARM6,758
 (59) 2
 453,463
 (8,390) 71
 460,221
 (8,449) 73
Total Agency RMBS pass-through (1)
4,061,978
 (50,083) 211
 3,366,167
 (104,080) 198
 7,428,145
 (154,163) 409
Agency-CMO (2)
152,962
 (6,315) 34
 101,705
 (5,100) 19
 254,667
 (11,415) 53
Non-Agency CMBS (3)
1,214,691
 (17,778) 94
 659,298
 (25,381) 52
 1,873,989
 (43,159) 146
Non-Agency RMBS (4)
87,850
 (1,152) 19
 89,265
 (1,138) 16
 177,115
 (2,290) 35
GSE CRT(5)
9,639
 (193) 1
 —
 —
 —
 9,639
 (193) 1
Total5,527,120
 (75,521) 359
 4,216,435
 (135,699) 285
 9,743,555
 (211,220) 644
(1)Includes Agency RMBS with a fair value of $6.1 billion for which the fair value option has been elected. Such securities have unrealized losses of $130.2 million.
(2)Includes Agency IO and Agency-CMO with fair value of $21.8 million and $66.0 million, respectively, for which the fair value option has been elected. These Agency IO and Agency-CMO securities have unrealized losses of $6.3 million and $845,000, respectively.
(3)Includes non-Agency CMBS with a fair value of $831.3 million for which the fair value option has been elected. Such securities have unrealized losses of $26.3 million.
(4)Includes non-Agency RMBS and non-Agency IO with a fair value of $6.2 million and $3.7 million for which the fair value option has been elected. Such securities have unrealized losses of $79,000 and $269,000, respectively.
(5)Fair value option has been elected for all GSE CRT that are in an unrealized loss position.
Gross unrealized losses on our Agency RMBS, Agency CMBS, GSE CRT and CMO were $55.3 million at March 31, 2019 (December 31, 2018: $159.3 million). Due to the inherent credit quality of Agency RMBS, Agency CMBS and Agency-CMO, we determined that at March 31, 20192020 and December 31, 2018, any2019.
March 31, 2020
  Less than 12 Months12 Months or More
Total (1)
$ in thousandsFair
Value		Unrealized
Losses		Number
of
Securities		Fair
Value		Unrealized
Losses		Number
of
Securities		Fair
Value		Unrealized
Losses		Number
of
Securities
Agency-CMO3,278  (668) 11  2,201  (442) 7  5,479  (1,110) 18  
Agency CMBS194,960  (3,054) 7  —  —  —  194,960  (3,054) 7  
Non-Agency CMBS1,107,247  (234,156) 115  —  —  —  1,107,247  (234,156) 115  
GSE CRT534,114  (161,429) 44  —  —  —  534,114  (161,429) 44  
Non-Agency RMBS77,300  (11,590) 27  297  (17) 3  77,597  (11,607) 30  
Total1,916,899  (410,897) 204  2,498  (459) 10  1,919,397  (411,356) 214  
(1)Unrealized losses relate to securities or embedded derivatives that are recorded at fair value through earnings. There were 0 unrealized losses on available-for-sale securities as of March 31, 2020 as those losses were recorded as impairments of the securities' amortized cost basis because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis.
December 31, 2019
  Less than 12 Months12 Months or MoreTotal
$ in thousandsFair
Value		Unrealized
Losses		Number
of
Securities		Fair
Value		Unrealized
Losses		Number
of
Securities		Fair
Value		Unrealized
Losses		Number
of
Securities
Agency RMBS:
15 year fixed-rate957  (1) 2  362  (3) 4  1,319  (4) 6  
30 year fixed-rate255,649  (207) 3  34,009  (256) 5  289,658  (463) 8  
Hybrid ARM434  (2) 1  1,524  (46) 3  1,958  (48) 4  
Total Agency RMBS pass-through (1)
257,040  (210) 6  35,895  (305) 12  292,935  (515) 18  
Agency-CMO (2)
67,875  (1,194) 15  6,155  (1,513) 13  74,030  (2,707) 28  
Agency CMBS (3)
1,743,800  (50,521) 58  —  —  —  1,743,800  (50,521) 58  
Non-Agency CMBS (4)
203,129  (2,783) 19  101,021  (11,425) 7  304,150  (14,208) 26  
Non-Agency RMBS (5)
26,283  (3,935) 14  12,199  (636) 2  38,482  (4,571) 16  
GSE CRT(6)
77,044  (74) 4  —  —  —  77,044  (74) 4  
Total2,375,171  (58,717) 116  155,270  (13,879) 34  2,530,441  (72,596) 150  
(1)Includes Agency RMBS with a fair value of $271.3 million for which the fair value option has been elected. These securities have unrealized losses on these securities are not other than temporary.of $268,000.
Gross(2)Includes Agency IO with fair value of $11.1 million for which the fair value option has been elected. These Agency IO have unrealized losses on ourof $2.3 million.
(3)Fair value option has been elected for all Agency IO,CMBS that are in an unrealized loss position.
(4)Includes non-Agency CMBS with a fair value of $181.5 million for which the fair value option has been elected. These securities have unrealized losses of $2.8 million.
(5)Includes non-Agency RMBS and non-Agency CMBS were $17.1IO with a fair value of $17.6 million atand $8.5 million, respectively, for which the fair value option has been elected. These securities have unrealized losses of $261,000 and $3.7 million, respectively.
(6)Fair value option has been elected for all GSE CRT that are in an unrealized loss position.
On January 1, 2020, we adopted accounting guidance that requires us to estimate an allowance for credit losses on available-for-sale securities in unrealized loss positions. As of March 31, 2019 (December 31, 2018: $51.9 million).2020, there was no allowance for credit losses recorded because we did not hold any available-for-sale securities that were in unrealized loss positions. We did not considerrecord any provisions for credit losses on our condensed consolidated statement of operations during the three months ended March 31, 2020. We recorded impairments of $78.8 million on our condensed consolidated statement of operations during the three months ended March 31, 2020 because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis. We still held these unrealized lossessecurities as of March 31, 2020.
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Prior to be credit related, but rather due to non-credit related factors such as interest rates, prepayment speeds, and market fluctuations. These investment securities are included in our assessment for other-than-temporary impairment ("OTTI").
We assessJanuary 1, 2020, we assessed our investment securities for OTTIother-than-temporary impairment ("OTTI") on a quarterly basis. When the fair value of an investment iswas less than its amortized cost at the balance sheet date of the reporting period for which impairment iswas assessed, the impairment iswas designated as either "temporary" or "other-than-temporary." This analysis includesincluded a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. Underlying loan characteristics reviewed include,included, but arewere not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.
The following table summarizes OTTI included in earnings for the three months ended March 31, 2019 and 2018:
2019:
 Three Months Ended March 31,
$ in thousands2019 2018
RMBS interest-only securities1,463
 4,309
Non-Agency RMBS (1)
313
 50
Total1,776
 4,359
(1)Amounts disclosed relate to credit losses on debtThree Months Ended March 31,
$ in thousands2019
RMBS interest-only securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.1,463 

Non-Agency RMBS (1)
313 
Total131,776 

Table(1)Amounts disclosed relate to credit losses on debt securities for which a portion of Contents


an other-than-temporary impairment was recognized in other comprehensive income.
OTTI on RMBS interest-only securities was recorded as a reclassification from an unrealized to realized loss within gain (loss) on investments, net on the condensed consolidated statements of operations because we account for these securities under the fair value option. As of March 31, 2019, we did not intend to sell the securities and determined that it was not more likely than not that we will be required to sell the securities.
The following table summarizes the components of our total gain (loss) on investments, net for the three months ended March 31, 20192020 and 2018.2019.
Three Months Ended March 31,
$ in thousands20202019
Gross realized gains on sale of investments328,128  1,202  
Gross realized losses on sale of investments(332,413) (12,317) 
Impairment of investments the Company intends to sell or more likely than not will be required to sell before recovery of amortized cost basis(78,834) —  
Other-than-temporary impairment losses—  (1,776) 
Net unrealized gains and losses on MBS accounted for under the fair value option(514,503) 280,039  
Net unrealized gains and losses on GSE CRT accounted for under the fair value option(152,369) 1,234  
Net unrealized gains and losses on commercial loan and loan participation interest(5,492) —  
Total gain (loss) on investments, net(755,483) 268,382  
 Three Months Ended March 31,
$ in thousands2019 2018
Gross realized gains on sale of investments1,202
 —
Gross realized losses on sale of investments(12,317) (9,237)
Other-than-temporary impairment losses(1,776) (4,359)
Net unrealized gains and losses on MBS accounted for under the fair value option280,039
 (147,195)
Net unrealized gains and losses on GSE CRT accounted for under the fair value option1,234
 434
Net unrealized gains and losses on trading securities—
 (13)
Total gain (loss) on investments, net268,382
 (160,370)
The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the three months ended March 31, 20192020 and 2018.2019. GSE CRT interest income excludes coupon interest associated with embedded derivatives not accountedof $4.7 million for under the fair value optionthree months ended March 31, 2020 (2019: $5.4 million) that is recorded as realized and unrealized credit derivative income (loss), net.
For the three months ended March 31, 2020
$ in thousandsCoupon
Interest		Net (Premium
Amortization)/Discount
Accretion		Interest
Income
Agency RMBS105,878  (20,913) 84,965  
Agency CMBS33,995  (1,666) 32,329  
Non-Agency CMBS42,218  5,058  47,276  
Non-Agency RMBS10,760  2,698  13,458  
GSE CRT8,507  (1,750) 6,757  
Other751  —  751  
Total202,109  (16,573) 185,536  

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For the three months ended March 31, 2019
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
$ in thousandsCoupon
Interest		Net (Premium
Amortization)/Discount
Accretion		Interest
Income
Agency RMBS and Agency CMBS130,197
 (12,725) 117,472
Agency RMBSAgency RMBS119,726  (12,194) 107,532  
Agency CMBSAgency CMBS10,471  (531) 9,940  
Non-Agency CMBS38,830
 3,031
 41,861
Non-Agency CMBS38,830  3,031  41,861  
Non-Agency RMBS14,267
 3,922
 18,189
Non-Agency RMBS14,267  3,922  18,189  
GSE CRT8,596
 (1,178) 7,418
GSE CRT8,596  (1,178) 7,418  
Other552
 —
 552
Other552  —  552  
Total192,442
 (6,950) 185,492
Total192,442  (6,950) 185,492  
For the three months ended March 31, 2018
$ in thousands
Coupon
Interest
 
Net (Premium
Amortization)/Discount
Accretion
 
Interest
Income
Agency RMBS and Agency CMBS108,317
 (23,222) 85,095
Non-Agency CMBS37,293
 1,426
 38,719
Non-Agency RMBS14,012
 5,177
 19,189
GSE CRT6,525
 (697) 5,828
Other172
 —
 172
Total166,319
 (17,316) 149,003


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Note 5 – Other Assets
The following table summarizes our other assets as of March 31, 20192020 and December 31, 2018.2019:
$ in thousandsMarch 31, 2019 December 31, 2018$ in thousandsMarch 31, 2020December 31, 2019
FHLBI stock74,250
 74,250
FHLBI stock74,250  74,250  
Loan participation interest53,827
 54,981
Loan participation interest21,577  44,654  
Commercial loans, held-for-investment24,454
 31,582
Commercial loan, held-for-investmentCommercial loan, held-for-investment22,577  24,055  
Investments in unconsolidated ventures24,129
 24,012
Investments in unconsolidated ventures21,088  21,998  
Prepaid expenses and other assets1,253
 1,234
Prepaid expenses and other assets1,501  1,223  
Total177,913
 186,059
Total140,993  166,180  
IAS Services LLC, our wholly-owned captive insurance subsidiary, is required to purchase and hold Federal Home Loan Bank of Indianapolis ("FHLBI") stock as a condition of membership in the FHLBI. The stock is recorded at cost.
In August 2018, we acquiredWe have a participation interest in a secured loan collateralized by mortgage servicing rights. The loan has a two year term subject to a one year extension at the borrower's option. The participation interestrights that bears interest at a floating rate based on LIBOR plus a spread.The weighted average asset yield for the participation interest was 6.14%6.32% as of March 31, 20192020 and 6.06%5.82% as of December 31, 2018.2019. We elected to account forrecorded an unrealized loss of $3.8 million on the investment usingparticipation interest in the fair value option. Refer to Note 14 - "Commitments and Contingencies" for additional details regarding our unfunded commitment on this loan participation interest.
As ofthree months ended March 31, 2020 and 0 unrealized gain or loss in the three months ended March 31, 2019. We sold our participation interest for $21.6 million on April 1, 2020.
We have an investment in a commercial loan portfolio consisted of one commercialthat matures in February 2021. The loan with a weighted average maturity of 1.9 years (December 31, 2018: two commercial loans with a weighted average maturity of 1.7 years). The loans had a weighted average coupon rate of 10.99%10.08% as of March 31, 20192020 and 10.69%10.19% as of December 31, 2018. The loans were not impaired, and we have not recorded an allowance for loan losses as of March 31, 2019 and December 31, 2018 based on our analysis of credit quality factors as described2019. As discussed in Note 2 -2- "Summary of Significant Accounting Policies" included, we elected the fair value option for this loan on January 1, 2020 and recorded a cumulative effect adjustment to increase retained earnings by $342,000 on January 1, 2020. We recorded an unrealized loss on this loan of $1.7 million in the three months ended March 31, 2020 based on a discounted cash flow valuation prepared by an independent pricing service. We previously reported this loan at amortized cost on our condensed consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2018.balance sheet.
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 14 - "Commitments and Contingencies" for additional details regarding our commitments to these unconsolidated ventures.



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Note 6 – Borrowings
We finance the majority of our investment portfolio through repurchase agreements and secured loans. The following tables summarize certain characteristics of our borrowings at March 31, 20192020 and December 31, 2018.2019. Refer to Note 7 - "Collateral Positions" for collateral pledged and held under our repurchase agreements and secured loans.
$ in thousandsMarch 31, 2020
Weighted
WeightedAverage
AverageRemaining
AmountInterestMaturity
OutstandingRate(days)
Repurchase Agreements:
Agency RMBS1,571,471  1.40 %13
Agency CMBS1,622,054  1.37 %18
Non-Agency CMBS1,833,234  2.16 %8
Non-Agency RMBS549,868  2.22 %7
GSE CRT692,081  2.15 %11
Loan participation interest19,038  2.50 %149
Total Repurchase Agreements6,287,746  1.77 %13
Secured Loans1,350,000  1.29 %1839
Total Borrowings7,637,746  1.69 %335

$ in thousandsDecember 31, 2019
Weighted
WeightedAverage
AverageRemaining
AmountInterestMaturity
OutstandingRate(days)
Repurchase Agreements:
Agency RMBS9,666,964  1.95 %46
Agency CMBS4,246,359  1.95 %43
Non-Agency CMBS2,041,968  2.71 %14
Non-Agency RMBS790,412  2.65 %16
GSE CRT753,110  2.70 %13
Loan participation interest33,490  3.22 %240
Total Repurchase Agreements17,532,303  2.11 %39
Secured Loans1,650,000  1.93 %1587
Total Borrowings19,182,303  2.09 %172

16
$ in thousandsMarch 31, 2019
    Weighted
  Weighted Average
  Average Remaining
Amount Interest Maturity
Outstanding Rate (days)
Repurchase Agreements:     
Agency RMBS11,868,925
 2.68% 67
Agency CMBS1,639,097
 2.67% 72
Non-Agency CMBS1,642,106
 3.57% 18
Non-Agency RMBS887,186
 3.46% 25
GSE CRT746,703
 3.49% 20
Loan participation interest40,370
 4.09% 515
Total Repurchase Agreements16,824,387
 2.85% 59
Secured Loans1,650,000
 2.76% 1862
Total Borrowings18,474,387
 2.84% 220
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$ in thousandsDecember 31, 2018
    Weighted
  Weighted Average
  Average Remaining
Amount Interest Maturity
Outstanding Rate (days)
Repurchase Agreements:     
Agency RMBS9,529,352
 2.56% 36
Agency CMBS810,450
 2.53% 31
Non-Agency CMBS1,616,473
 3.56% 19
Non-Agency RMBS923,959
 3.60% 26
GSE CRT681,014
 3.48% 21
Loan participation interest41,236
 4.09% 605
Total Repurchase Agreements13,602,484
 2.80% 34
Secured Loans1,650,000
 2.68% 1952
Total Borrowings15,252,484
 2.79% 242

The following table shows the aggregate amount of maturities of our outstanding borrowings:
$ in thousandsAs of
Borrowings maturing within:March 31, 20192020
4/1/2019 - 3/31/202017,084,017
4/1/2020 - 3/31/2021(1)
140,3706,387,746 
4/1/2021 - 3/31/2022—
4/1/2022 - 3/31/2023—
4/1/2023 - 3/31/2024—
Thereafter4/1/2024 - 3/31/20251,250,000— 
Total
Thereafter (1)
18,474,3871,250,000 
Total7,637,746 


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Table(1)As discussed in Note 15 - "Subsequent Events", in April 2020 FHLBI accelerated the repayment date of Contents


our $1.35 billion of secured loans that were outstanding because we were not in compliance with all of the financial covenants of our secured loan agreements at March 31, 2020. We repaid $512.5 million of our secured loans between April 1, 2020 and May 31, 2020. The remaining balance of our secured loans of $837.5 million is due by December 2020.
Repurchase Agreements
Our repurchase agreements generally bear interest at a contractually agreed upon rateAs discussed in Note 1 - “Organization and have maturities rangingBusiness Operations”, we received an unusually high number of margin calls from one month to six months. Ourour repurchase agreement that is collateralized by a loan participation interest bears interest at a floating rate based on LIBOR plus acounterparties during March 2020 following significant spread widening in both Agency and matures on August 27, 2020. Repurchase agreements are accounted for as secured borrowings since we maintain effective control of the financed assets. Repurchase agreements are subject to certain financial covenants.non-Agency securities. We were unable to meet margin calls as of March 23, 2020 and were not in compliance with theseall of the financial covenants atof our repurchase agreements as of March 31, 2019.2020. Certain of our repurchase agreement counterparties entered into forbearance discussions with us during the period between March 23, 2020 and March 31, 2020 and permitted our repurchase agreements to remain outstanding while we were not in compliance.
In addition, between March 23, 2020 and March 31, 2020, certain of our counterparties seized and sold securities that we had posted as collateral for our repurchase agreements. 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 in our condensed consolidated statement of operations. We repaid all of our repurchase agreements as of May 7, 2020 as discussed in Note 15 - “Subsequent Events”.
Our repurchase agreement collateral pledged ratio (MBS, GSE CRTs and a loan participation interest pledged as collateral/Amount Outstanding)amount outstanding) was 110%106% as of March 31, 20192020 (December 31, 2018: 111%2019: 109%).
Secured Loans
Our wholly-owned captive insurance subsidiary, IAS Services LLC, is a member of the FHLBI. As a member of the FHLBI, IAS Services LLC has borrowed funds from the FHLBI in the form of secured loans.
As of March 31, 2019,2020, IAS Services LLC had $1.65$1.35 billion in outstanding secured loans from the FHLBI. These secured loans have floating rates that are based on the three-month FHLB swap rate plus a spread. For the three months ended March 31, 2019,2020, IAS Services LLC had weighted average borrowings of $1.65$1.48 billion with a weighted average borrowing rate of 2.70%1.83% and a weighted average maturity of 5.15.0 years.
The Federal Housing Finance Agency’s ("FHFA") final rule governing Federal Home Loan Bank membership (the "FHFA Rule") became effective on February 19, 2016. The FHFA Rule permits existing captive insurance companies, suchWe were not in compliance with all of the financial covenants of our secured loan agreements as IAS Services LLC, to remain members until February 2021. New advances or renewals that mature after February 2021 are prohibited. The FHLBI has indicated it will honor the contractual maturity dates of existing advances to IAS Services LLC that were made prior to February 19, 2016 and extend beyond February 2021. We do not expect there to be any impact to our existing FHLBI borrowings under the FHFA rule. The ability to borrow fromMarch 31, 2020. As a result, the FHLBI is subject tomodified the terms of our continued creditworthiness, pledgingsecured loans and accelerated the repayment date of sufficient eligible collateral to secure advances, and compliance with certain agreements with FHLBI and FHFA rules.our secured loans in the second quarter of 2020 as discussed in Note 15 - "Subsequent Events".
As discussed in Note 5 - "Other Assets," IAS Services LLC is required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of secured loans from the FHLBI.


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Note 7 - Collateral Positions
The following table summarizes the fair value of collateral that we have pledged and held under our repurchase agreements, secured loans, interest rate swaps futures contracts and currency forward contracts as of March 31, 20192020 and December 31, 2018.2019. Refer to Note 2 - "Summary of Significant Accounting Policies - Fair Value Measurements" of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20182019 for a description of how we determine fair value. RMBS, CMBS and GSE CRT collateral pledged is included in mortgage-backed and credit risk transfer securities on our condensed consolidated balance sheets. Loan participation interest collateral pledged is included in other assets on our condensed consolidated balance sheets. Cash collateral pledged on secured loans, centrally cleared swaps, bilateral interest rate swaps, and currency forward contracts is classified as restricted cash on our condensed consolidated balance sheets. Cash collateral pledged on futures contractsrepurchase agreements is classified as due from counterparties on our condensed consolidated balance sheets.
Agency CMBS purchase commitments that are recorded as mortgage-backed and credit risk transfer securities on our condensed consolidated balance sheets cannot be pledged as collateral until these securities settle. We held approximately $507.2 million and $96.2 million of these securities as of March 31, 2020 and December 31, 2019, respectively.
Cash collateral held on bilateral swapsrepurchase agreements that is not restricted for use is included in cash and cash equivalents on our condensed consolidated balance sheets and the liability to return the collateral is included in collateral held payable. Non-cash collateral held is only recognized if the counterparty defaults or if we sell the pledged collateral. As of March 31, 20192020 and December 31, 2018,2019, we did not recognize any non-cash collateral held.held on our condensed consolidated balance sheets.
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$ in thousandsAs of$ in thousandsAs of
Collateral PledgedMarch 31, 2019 December 31, 2018Collateral PledgedMarch 31, 2020December 31, 2019
Repurchase Agreements:   Repurchase Agreements:
Agency RMBS12,575,947
 10,158,404
Agency RMBS1,699,937  10,187,555  
Agency CMBS1,763,779
 870,702
Agency CMBS1,736,097  4,446,384  
Non-Agency CMBS2,072,829
 2,016,202
Non-Agency CMBS1,862,472  2,549,841  
Non-Agency RMBS1,079,223
 1,127,911
Non-Agency RMBS606,289  943,176  
GSE CRT907,529
 819,328
GSE CRT719,639  918,117  
Loan participation interest53,827
 54,981
Loan participation interest21,577  44,654  
CashCash394,424  32,568  
Total repurchase agreements collateral pledged18,453,134
 15,047,528
Total repurchase agreements collateral pledged7,040,435  19,122,295  
Secured Loans:   Secured Loans:
Agency RMBS686,656
 702,952
Agency RMBS298,361  621,471  
Non-Agency CMBS1,260,396
 1,227,412
Non-Agency CMBS1,096,812  1,276,418  
Restricted cashRestricted cash221,368  600  
Total secured loans collateral pledged1,947,052
 1,930,364
Total secured loans collateral pledged1,616,541  1,898,489  
Interest Rate Swaps, Futures Contracts and Currency Forward Contracts:   
Interest Rate Swaps and Currency Forward Contracts:Interest Rate Swaps and Currency Forward Contracts:
Agency RMBS197,958
 159,914
Agency RMBS—  189,780  
Cash (1)
18,025
 13,500
Total interest rate swaps, futures contracts and currency forward contracts collateral pledged215,983
 173,414
Restricted cashRestricted cash320  116,395  
Total interest rate swaps and currency forward contracts collateral pledgedTotal interest rate swaps and currency forward contracts collateral pledged320  306,175  
   
Total collateral pledged:   Total collateral pledged:
Mortgage-backed and credit risk transfer securities20,544,317
 17,082,825
Mortgage-backed and credit risk transfer securities8,019,607  21,132,742  
Loan participation interest53,827
 54,981
Loan participation interest21,577  44,654  
Cash18,025
 13,500
Cash394,424  32,568  
Total collateral pledged20,616,169
 17,151,306
Restricted cashRestricted cash221,688  116,995  
Total collateral pledged (1)
Total collateral pledged (1)
8,657,296  21,326,959  
   
As ofAs of
Collateral HeldMarch 31, 2019 December 31, 2018Collateral HeldMarch 31, 2020December 31, 2019
Repurchase Agreements:Repurchase Agreements:
CashCash50,135  10  
Non-cash collateralNon-cash collateral—  181  
Total repurchase agreements collateral heldTotal repurchase agreements collateral held50,135  191  
Interest Rate Swaps:   Interest Rate Swaps:
CashCash—  160  
Total interest rate swap collateral heldTotal interest rate swap collateral held—  160  
Total collateral held:Total collateral held:
Cash2,273
 18,083
Cash50,135  170  
Non-cash collateral—
 —
Non-cash collateral—  181  
Total collateral held2,273
 18,083
Total collateral held50,135  351  
(1)Includes restricted cashpledged securities of $5,025,000$534.5 million sold but not settled as of March 31, 2020 that are recorded as an investment related receivable on our condensed consolidated balance sheet. Securities associated with unsettled trades remain legally pledged until the related repurchase agreement is repaid. There were 0 securities pledged as collateral on centrally cleared swaps.

associated with unsettled trades as of December 31, 2019.
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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 as determined by a pricing service agreed to by the respective lender and us.value. We would be required to provide additional collateral or 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.
Secured Loans
The ability to borrow from the FHLBI is subject to our continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with FHLBI and FHFA rules. Collateral pledged with the FHLBI is held in trust for the benefit of the FHLBI and is not commingled with our other assets. The FHLBI does not have the right to resell or repledge collateral posted unless an event of default occurs. The FHLBI retains the right to mark the underlying collateral for FHLBI advances to fair value as determined by the FHLBI in its sole discretion. IAS Services LLC would be required to provide additional collateral or fundto meet margin calls if the value of pledged assets declines. See Note 15 - "Subsequent Events" for a discussion of the status of our FHLBI secured loans as of the filing date of this Quarterly Report.
Interest Rate Swaps
Collateral pledged with our interest rate swap counterparties is segregated in our books and records. We have two typesAll of interest rate swap agreements: bilateralthe interest rate swaps that are governed by an International Swaps and Derivatives Association ("ISDA") agreement and interest rate swaps that arewe entered into during the three months ended March 31, 2020 were centrally cleared by a registered clearing organization such as the Chicago Mercantile Exchange ("CME"(“CME”) and LCH Limited ("LCH"(“LCH”) through a Futures Commission Merchant ("FCM"(“FCM”). Interest rate swaps that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties' market value. The counterparties have the right to repledge the collateral posted, but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate swaps change.
We are required to pledge initial margin and daily variation margin for our centrally cleared interest rate swaps that are centrally cleared. The FCM determinesis based on the fair value of our centrally cleared swaps, including dailycontracts 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. The daily variation margin payment for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral. Accordingly, cash collateral pledgedand is recorded as gain (loss) on derivative instruments, net in our centrally clearedconsolidated statements of operations. Our FCM agreements include cross default provisions. We were not a party to any interest rate swaps is settled against the fair valueas of these swaps.

Futures Contracts
We are required to pledge initial margin and daily variation margin for our futures contracts that is based on the fair value of our contracts as determined by our FCM. The daily variation margin payment for our futures contracts is characterized as settlement of the futures contract itself rather than collateral. Accordingly, cash collateral pledged on our futures contracts is settled against the fair value of these contracts.

March 31, 2020.
Currency Forward Contracts
Collateral pledged with our currency forward counterparty is segregated in our books and records. Our currency forward contract provides for bilateral collateral pledging based on market value as determined by theour counterparty. Collateral pledged with our currency forward counterparty is segregated in our books and records and can be in the form of cash or securities. Our counterparty has the right to repledge the collateral posted, but has the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the currency forward contract changes.



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Note 8 – Derivatives and Hedging Activities
The following table summarizes changes in the notional amount of our derivative instruments during 2019:2020:
$ in thousandsNotional Amount as
of December 31, 2018		 Additions Settlement,
Termination,
Expiration
or Exercise		 Notional Amount as
of March 31, 2019		$ in thousandsNotional Amount
as
of December 31,
2019		AdditionsSettlement,
Termination,
Expiration
or Exercise		Notional Amount
as
of March 31,
2020
Interest Rate Swaps12,370,000
 4,575,000
 (4,050,000) 12,895,000
Interest Rate Swaps14,000,000  93,675,000  (107,675,000) —  
Futures Contracts1,689,900
 1,586,400
 (1,689,900) 1,586,400
Currency Forward Contracts23,149
 25,534
 (23,149) 25,534
Currency Forward Contracts23,111  22,738  (23,111) 22,738  
Credit Derivatives526,912
 —
 (9,378) 517,534
Credit Derivatives464,966  —  (211,282) 253,684  
Total14,609,961
 6,186,934
 (5,772,427) 15,024,468
Total14,488,077  93,697,738  (107,909,393) 276,422  
Refer to Note 7 - "Collateral Positions" for further information regarding our collateral pledged to and received from our interest rate swapderivative counterparties.
Interest Rate Swaps
Our repurchase agreements are usually settled on a short-term basis ranging from one to twelvesix months. At each settlement date, we typically refinance each repurchase agreement at the market interest rate at that time. In addition, our secured loans have floating interest rates. As such, we are exposed to changing interest rates. 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. Interest rate swaps involve making fixed-rate payments to a counterparty in exchange for the receipt of variable-rate amounts over the life of the agreements without exchange of the underlying notional amount.
Amounts recorded in accumulated other comprehensive income ("AOCI") before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed
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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 $5.9$10.1 million as a decrease (March 31, 2018: $6.52019: $5.9 million as a decrease) to interest expense for the three months ended March 31, 2019. 2020. We increased the amount of gains and losses reclassified as a decrease to interest expense during the three months ended March 31, 2020 by $4.2 million because it is probable that the original forecasted repurchase agreement transactions will not occur by the end of the originally specified time period. During the next 12 months, we estimate that $23.8$19.1 million will be reclassifiedreclassified as a decrease to interest expense, repurchase agreements. As of March 31, 2019, $93.82020, $65.8 million (December 31, 2018: $99.62019: $75.9 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.


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AsWe did 0t have any interest rate swaps outstanding as of March 31, 2019 and2020. As of December 31, 2018,2019, we had the following interest rate swaps outstanding:
with the following maturities outstanding:
$ in thousands As of March 31, 2019$ in thousandsAs of December 31, 2019
Maturities 
Notional Amount(1)
 Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Years to MaturityMaturities
Notional Amount(1)
Weighted Average Fixed Pay RateWeighted Average Receive RateWeighted Average Years to Maturity
2020 1,000,000
 2.72% 2.50% 1.420201,900,000  1.67 %1.84 %0.6
2021 2,800,000
 2.49% 2.54% 2.220212,500,000  1.40 %1.77 %1.3
2022 2,550,000
 2.13% 2.61% 3.22022800,000  1.53 %1.91 %2.9
2023 1,500,000
 2.21% 2.48% 4.320232,400,000  1.44 %1.72 %3.9
2024 1,600,000
 2.27% 2.65% 4.82024900,000  1.49 %1.76 %4.8
Thereafter 3,445,000
 2.46% 2.52% 7.8Thereafter5,500,000  1.44 %1.78 %9.5
Total 12,895,000
 2.37% 2.55% 4.4Total14,000,000  1.47 %1.79 %5.2
(1)Notional amount includes $10.7 billion of interest rate swaps that received variable payments based on 1-month LIBOR and $3.3 billion of interest rate swaps that received variable payments based on 3-month LIBOR as of December 31, 2019.
$ in thousands As of December 31, 2018
Maturities 
Notional Amount(2)
 Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity
2019 1,500,000
 2.70% 2.47% 0.9
2020 1,500,000
 2.78% 2.51% 1.7
2021 2,300,000
 2.51% 2.58% 2.5
2022 2,550,000
 2.13% 2.65% 3.4
2023 1,600,000
 2.39% 2.47% 4.7
Thereafter 2,920,000
 2.47% 2.55% 6.8
Total 12,370,000
 2.46% 2.55% 3.7
(1)Notional amount includes $8.4 billion of interest rate swaps that receive variable payments based on 1-month LIBOR and $4.5 billion of interest rate swaps that receive variable payments based on 3-month LIBOR as of March 31, 2019.
(2)Notional amount includes $6.7 billion of interest rate swaps that receive variable payments based on 1-month LIBOR and $5.7 billion of interest rate swaps that receive variable payments based on 3-month LIBOR as of December 31, 2018.
TBAs, Futures and Currency Forward Contracts
We purchase or sell certain TBAs and U.S. Treasury futures contracts to help mitigate the potential impact of changes in interest rates on the performance of our investment portfolio. We recognize realized and unrealized gains and losses associated with the purchases or sales of TBAs and U.S. Treasury futures contracts in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations. We did not have any futures contract outstanding as of March 31, 2020 and December 31, 2019.
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 March 31, 2019,2020, we had $25.5$22.7 million (December 31, 2018:2019: $23.1 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 are accounted for as hybrid financial instruments consisting of a debt host contract and an embedded credit derivative. Embedded derivatives associated with GSE CRTs are recorded within mortgage-backed and credit risk transfer securities, at fair value, on the condensed consolidated balance sheets. At March 31, 20192020 and December 31, 2018,2019, terms of the GSE CRT embedded derivatives are:
$ in thousandsMarch 31, 2019 December 31, 2018$ in thousandsMarch 31, 2020December 31, 2019
Fair value amount25,305
 22,771
Fair value amount(29,772) 10,281  
Notional amount517,534
 526,912
Notional amount253,684  464,966  
Maximum potential amount of future undiscounted payments517,534
 526,912
Maximum potential amount of future undiscounted payments253,684  464,966  
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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 March 31, 20192020 and December 31, 2018.2019.
$ in thousands
Derivative AssetsDerivative Assets Derivative LiabilitiesDerivative AssetsDerivative Liabilities
 
As of
March 31, 2019
 As of December 31, 2018   
As of
March 31, 2019
 As of December 31, 2018As of March 31, 2020As of December 31, 2019As of March 31, 2020As of December 31, 2019
Balance
Sheet
 Fair Value Fair Value 
Balance
Sheet
 Fair Value Fair ValueBalance
Sheet		Fair ValueFair ValueBalance
Sheet		Fair ValueFair Value
Interest Rate Swaps Asset 21,161
 15,089
 Interest Rate Swaps Liability 8,463
 15,382
Interest Rate Swaps Asset—  18,533  Interest Rate Swaps Liability—  —  
Currency Forward Contracts 311
 —
 Currency Forward Contracts —
 172
Currency Forward Contracts—  —  Currency Forward Contracts302  352  
Futures Contracts 5,108
 —
 Futures Contracts —
 7,836
Total Derivative AssetsTotal Derivative Assets—  18,533  Total Derivative Liabilities302  352  
Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement
The tables below present the effect of our credit derivatives on the condensed consolidated statements of operations for the three months ended March 31, 20192020 and 2018.2019.
$ in thousandsThree months ended March 31, 2020
Derivative
not designated as
hedging instrument		Realized gain (loss), netGSE CRT embedded derivative coupon interestUnrealized gain (loss), netRealized and unrealized credit derivative income (loss), net
GSE CRT Embedded Derivatives2,283  4,718  (40,053) (33,052) 

$ in thousandsThree months ended March 31, 2019
Derivative
not designated as
hedging instrument		Realized gain (loss), netGSE CRT embedded derivative coupon interestUnrealized gain (loss), netRealized and unrealized credit derivative income (loss), net
GSE CRT Embedded Derivatives—  5,350  2,534  7,884  
$ in thousands Three months ended March 31, 2018
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 —
 5,633
 (2,468) 3,165




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The following tabletables summarizes the effect of interest rate swaps, futures contracts and currency forward contracts reported in gain (loss) on derivative instruments, net on the condensed consolidated statements of operations for the three months ended March 31, 20192020 and 2018:2019:
$ in thousandsThree Months Ended March 31, 2020
Derivative
not designated as
hedging instrument		Realized gain (loss) on derivative instruments, net Contractual net interest income (expense)Unrealized gain (loss), netGain (loss) on derivative instruments, net
Interest Rate Swaps(904,704) 11,924  (18,532) (911,312) 
Currency Forward Contracts484  —  49  533  
Total(904,220) 11,924  (18,483) (910,779) 
$ in thousands Three Months Ended March 31, 2019
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 (165,884) 4,509
 12,991
 (148,384)
Futures Contracts (66,688) —
 12,944
 (53,744)
Currency Forward Contracts 185
 —
 483
 668
Total (232,387) 4,509
 26,418
 (201,460)


$ in thousandsThree Months Ended March 31, 2019
Derivative
not designated as
hedging instrument		Realized gain (loss) on derivative instruments, net Contractual net interest income (expense)Unrealized gain (loss), netGain (loss) on derivative instruments, net
Interest Rate Swaps(165,884) 4,509  12,991  (148,384) 
Futures Contracts(66,688) —  12,944  (53,744) 
Currency Forward Contracts185  —  483  668  
Total(232,387) 4,509  26,418  (201,460) 


22




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$ in thousands Three Months Ended March 31, 2018
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 122,273
 (12,112) 32,374
 142,535
Futures Contracts (5,277) —
 (1,612) (6,889)
Currency Forward Contracts (3,418) —
 1,139
 (2,279)
Total 113,578
 (12,112) 31,901
 133,367
Credit-risk-related Contingent Features
We have agreements with each of our bilateral derivative counterparties. Some of those agreements contain a provision whereby if we default on any of our indebtedness, including default whereby repayment of the indebtedness has not been accelerated by the lender, we could be declared in default on our derivative obligations.
At March 31, 2019, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to bilateral interest rate swap agreements, was $8.4 million. We have minimum collateral posting thresholds with certain of our bilateral derivative counterparties and were required to pledge $12.1 million of collateral with these counterparties as of March 31, 2019. If we had breached any of these provisions at March 31, 2019, we could have been required to settle our obligations under these agreements at their termination value.
We also have an agreement with a clearing counterparty for our interest rate swaps that includes cross default provisions. The fair value of our centrally cleared interest rate derivative contracts, which includes accrued interest and variation margin but excludes any adjustment for non-performance risk, was a net asset of $17.8 million as of March 31, 2019.
We were in compliance with all of the financial provisions of these counterparty agreements as of March 31, 2019.
Note 9 – Offsetting Assets and Liabilities
Certain of our repurchase agreements and derivative transactions are governed by underlying agreements that generally provide for a right of offset under master netting arrangements (or similar agreements) in the event of default or in the event of bankruptcy of either party to the transactions. Assets and liabilities subject to such arrangements are presented on a gross basis in the condensed consolidated balance sheets.
The following tables present information about the assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset on our condensed consolidated balance sheets at March 31, 20192020 and December 31, 2018.2019. The daily variation margin payment for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral. As of March 31, 2019, ourOur derivative asset of $17.8$18.5 million (Decemberas of December 31, 2018: derivative liability of $13.2 million)2019 related to centrally cleared interest rate swaps is not included in the table below as a result of this characterization of daily variation margin.
Offsetting of Derivative Assets
As of March 31, 20192020
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets
$ in thousands
Gross
Amounts of
Recognized
Assets (Liabilities)		Gross
Amounts
Offset in the
Balance
Sheets		Net Amounts of Assets (Liabilities) Presented in the
Balance Sheets
Financial
Instruments (2)

Cash Collateral
(Received) Pledged		Net Amount
Liabilities
Derivatives (1)(2)
(302) —  (302) —  302  —  
Repurchase Agreements (3)
(6,287,746) —  (6,287,746) 6,287,746  —  —  
Secured Loans (4)
(1,350,000) —  (1,350,000) 1,350,000  —  —  
Total Liabilities(7,638,048) —  (7,638,048) 7,637,746  302  —  
       Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets  
$ in thousands
Description
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts
Offset in the Condensed Consolidated
Balance
Sheets
 
Net Amounts
of Assets
presented in
the Condensed
Consolidated
Balance Sheets
 
Financial
Instruments
 
Cash Collateral
Received
 Net Amount
Derivatives (1) (3)
8,742
 —
 8,742
 —
 (2,201) 6,541

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Offsetting of Derivative Liabilities, Repurchase Agreements and Secured Loans
As of March 31, 2019
       Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets  
$ in thousands
Description
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts
Offset in the Condensed Consolidated
Balance
Sheets
 
Net Amounts
of Liabilities
presented in
the Condensed
Consolidated
Balance Sheets
 
Financial
Instruments (2)
 

Cash Collateral
Pledged
 Net Amount
Derivatives (3)
8,463
 —
 8,463
 (8,463) —
 —
Repurchase Agreements (4)
16,824,387
 —
 16,824,387
 (16,824,387) —
 —
Secured Loans (5)
1,650,000
 —
 1,650,000
 (1,650,000) —
 —
Total18,482,850
 —
 18,482,850
 (18,482,850) —
 —
Offsetting of Derivative Assets
As of December 31, 2018
       Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets  
$ in thousands
Description
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts
Offset in the Condensed Consolidated
Balance
Sheets
 
Net Amounts
of Assets
presented in
the Condensed
Consolidated
Balance Sheets
 
Financial
Instruments
 
Cash Collateral
Received
 Net Amount
Derivatives (1) (3)
15,089
 —
 15,089
 (433) (14,656) —

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Offsetting of Derivative Liabilities and Repurchase Agreements
As of December 31, 20182019
Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets
$ in thousands
Gross
Amounts of
Recognized
Assets (Liabilities)		Gross
Amounts
Offset in the
Balance
Sheets		Net Amounts of Assets (Liabilities) Presented in the
Balance Sheets
Financial
Instruments (2)
Cash Collateral
(Received) Pledged		Net Amount
Liabilities
Derivatives (1)(2)
(352) —  (352) —  320  (32) 
Repurchase Agreements (3)
(17,532,303) —  (17,532,303) 17,532,303  —  —  
Secured Loans (4)
(1,650,000) —  (1,650,000) 1,650,000  —  —  
Total Liabilities(19,182,655) —  (19,182,655) 19,182,303  320  (32) 
(1)Amounts represent collateral pledged that is available to be offset against liability balances associated with currency forward contracts.
(2)The fair value of securities pledged as initial margin against our centrally cleared swaps was $189.8 million as of December 31, 2019. Cash collateral pledged on our currency forward contracts and centrally cleared interest rate swaps was $320,000 and $116.4 million as of March 31, 2020 and December 31, 2019, 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 $160,000 at December 31, 2019.
(3)The fair value of securities pledged against our borrowing under repurchase agreements was $6.6 billion and $19.1 billion at March 31, 2020 and December 31, 2019, respectively. We pledged cash collateral of $394.4 million and held cash collateral of $50.1 million under repurchase agreements as of March 31, 2020.
(4)The fair value of securities pledged against IAS Services LLC's borrowings under secured loans was $1.4 billion and $1.9 billion at March 31, 2020 and December 31, 2019, respectively. We pledged cash collateral against secured loans of $221.4 million and $600,000 as of March 31, 2020 and December 31, 2019, respectively.
24
       Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets  
$ in thousands
Description
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts
Offset in the Condensed Consolidated
Balance
Sheets
 
Net Amounts
of Liabilities
presented in
the Condensed
Consolidated
Balance Sheets
 
Financial
Instruments (2)
 

Cash Collateral
Pledged
 Net Amount
Derivatives (3)
10,239
 —
 10,239
 (2,058) (7,836) 345
Repurchase Agreements (4)
13,602,484
 —
 13,602,484
 (13,602,484) —
 —
Secured Loans (5)
1,650,000
 —
 1,650,000
 (1,650,000) —
 —
Total15,262,723
 —
 15,262,723
 (15,254,542) (7,836) 345
(1)
Amounts represent derivatives in an asset position which could potentially be offset against derivatives in a liability position at March 31, 2019 and December 31, 2018, subject to a netting arrangement.

(2)Amounts represent collateral pledged that is available to be offset against liability balances associated with repurchase agreements, secured loans and derivatives.
(3)
The fair value of securities pledged against our derivatives was $198.0 million (December 31, 2018: $159.9 million) at March 31, 2019, of which $164.8 million (December 31, 2018: $158.3 million) relates to initial margin pledged on centrally cleared interest rate swaps. Centrally cleared interest rate swaps are excluded from the tables above. Cash collateral received on our derivatives was $2.3 million and $18.1 million at March 31, 2019 and December 31, 2018, respectively. Cash collateral pledged by us on our futures contracts and interest rate swaps were $18.0 million and $13.5 million at March 31, 2019 and December 31, 2018, respectively. Cash collateral pledged on our centrally cleared interest rate swaps is settled against the fair value of these swaps and therefore excluded from the tables above at March 31, 2019 and December 31, 2018, respectively.
(4)The fair value of securities pledged against our borrowing under repurchase agreements was $18.5 billion and $15.0 billion at March 31, 2019 and December 31, 2018, respectively.
(5)
The fair value of securities pledged against IAS Services LLC's borrowings under secured loans was $1.9 billion at March 31, 2019 and December 31, 2018, respectively.
Note 10 – Fair Value of Financial Instruments
A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The three levels are defined as follows:
•Level 1 Inputs – Quoted prices for identical instruments in active markets.
•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs – Instruments with primarily unobservable value drivers.

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The following tables present our assets and liabilities measured at fair value on a recurring basis.
March 31, 2020
Fair Value Measurements Using:
$ in thousandsLevel 1Level 2Level 3
NAV as a practical expedient (3)
Total at
Fair Value
Assets:
Mortgage-backed and credit risk transfer securities (1)(2)
—  8,074,580  (29,772) —  8,044,808  
Other assets (4)
—  —  44,154  21,088  65,242  
Total assets—  8,074,580  14,382  21,088  8,110,050  
Liabilities:
Derivative liabilities—  302  —  —  302  
Total liabilities—  302  —  —  302  
 March 31, 2019  
 Fair Value Measurements Using:  
$ in thousandsLevel 1 Level 2 Level 3 
NAV as a practical expedient (3)
 
Total at
Fair Value
Assets:         
Mortgage-backed and credit risk transfer securities (1)(2)
—
 21,102,293
 25,305
 —
 21,127,598
Derivative assets5,108
 21,472
 —
 —
 26,580
Other assets (4)
—
 —
 53,827
 24,129
 77,956
Total assets5,108
 21,123,765
 79,132
 24,129
 21,232,134
Liabilities:         
Derivative liabilities—
 8,463
 —
 —
 8,463
Total liabilities—
 8,463
 —
 —
 8,463

December 31, 2019
 Fair Value Measurements Using: 
$ in thousandsLevel 1Level 2Level 3
NAV as a practical expedient (3)
Total at
Fair Value
Assets:
Mortgage-backed and credit risk transfer securities (1)(2)
—  21,761,505  10,281  —  21,771,786  
Derivative assets—  18,533  —  —  18,533  
Other assets (4)
—  —  44,654  21,998  66,652  
Total assets—  21,780,038  54,935  21,998  21,856,971  
Liabilities:
Derivative liabilities—  352  —  —  352  
Total liabilities—  352  —  —  352  
 December 31, 2018  
 Fair Value Measurements Using:  
$ in thousandsLevel 1 Level 2 Level 3 
NAV as a practical expedient (3)
 Total at
Fair Value
Assets:         
Mortgage-backed and credit risk transfer securities (1)(2)
—
 17,373,871
 22,771
 —
 17,396,642
Derivative assets—
 15,089
 —
 —
 15,089
Other assets (4)
—
 —
 54,981
 24,012
 78,993
Total assets—
 17,388,960
 77,752
 24,012
 17,490,724
Liabilities:         
Derivative liabilities7,836
 15,554
 —
 —
 23,390
Total liabilities7,836
 15,554
 —
 —
 23,390
(1)For more detail about the fair value of our MBS and GSE CRTs, refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities."
(2)Our GSE CRTs purchased prior to August 24, 2015 are accounted for as hybrid financial instruments with an embedded derivative. The hybrid financial instruments consist of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3. As of March 31, 2019, the net embedded derivative asset position of $25.3 million includes $30.2 million of embedded derivatives in an asset position and $4.9 million of embedded derivatives in a liability position. As of December 31, 2018, the net embedded derivative asset position of $22.8 million includes $28.8 million of embedded derivatives in an asset position and $6.0 million of embedded derivatives in a liability position.
(3)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 March 31, 2019 and December 31, 2018, the weighted average remaining term of our investments in unconsolidated ventures is 2.8 and 2.6 years, respectively.
(4)Includes $53.8 million and $55.0 million of a loan participation interest as of March 31, 2019 and December 31, 2018, respectively. The loan participation interest is transferable and bears interest at a variable rate based on LIBOR plus a spread and resets daily. As a result, the cost of the loan participation interest approximates its fair value.

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

(2)Our GSE CRTs purchased prior to August 24, 2015 are accounted for as hybrid financial instruments with an embedded derivative. The hybrid financial instruments consist of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3. As of March 31, 2020, the embedded derivative is a liability of $29.8 million. As of December 31, 2019, the net embedded derivative asset position of $10.3 million includes $19.5 million of embedded derivatives in an asset position and $9.2 million of embedded derivatives in a liability position.
(3)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 March 31, 2020 and December 31, 2019, the weighted average remaining term of our investments in unconsolidated ventures was 1.9 years for both periods.
(4)Includes $21.6 million and $44.7 million of a loan participation interest as of March 31, 2020 and December 31, 2019, respectively and $22.6 million of a commercial loan as of March 31, 2020. We elected the fair value option for our commercial loan as of January 1, 2020 and valued it based on a third party appraisal as of March 31, 2020. We sold the loan participation interest on April 1, 2020 and valued it at its sales price as of March 31, 2020.
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The following table shows a reconciliation of the beginning and ending fair value measurements of our GSE CRT embedded derivatives, which we have valued utilizing Level 3 inputs:
Three Months Ended March 31,Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Beginning balance22,771
 45,400
Beginning balance10,281  22,771  
Sales and settlementsSales and settlements(2,283) —  
Total net credit derivative gains (losses) included in net income:Total net credit derivative gains (losses) included in net income:
Realized credit derivative gains (losses), netRealized credit derivative gains (losses), net2,283  —  
Unrealized credit derivative gains (losses), net2,534
 (2,468)Unrealized credit derivative gains (losses), net(40,053) 2,534  
Ending balance25,305
 42,932
Ending balance(29,772) 25,305  
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 March 31,
$ in thousands20202019
Beginning balance44,654  54,981  
Purchases/Advances—  577  
Repayments(19,269) (1,731) 
Total net unrealized losses included in net income:
Unrealized losses(3,808) —  
Ending balance21,577  53,827  
Unrealized losses on our loan participation interest 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 at amortized cost and ending balance at fair value, which we have valued utilizing Level 3 inputs:
Three Months Ended March 31,
$ in thousands20192020
Beginning balance, at amortized cost54,98124,055 
AdvancesCumulative effect of adoption of new accounting principle577342 
Repayments(1,731(136))
Total net unrealized losses included in net income:
Unrealized losses(1,684)
Ending balance, at fair value53,82722,577 
Unrealized losses on our commercial loan are included in gain (loss) on investments, net in our condensed consolidated statements of operations.
The following tables summarize significant unobservable inputs used in the fair value measurement of our GSE CRT embedded derivatives:
Fair Value atValuationUnobservableWeighted
$ in thousandsMarch 31, 20192020TechniqueInputRangeAverage
GSE CRT Embedded Derivatives25,305(29,772)
Market Comparables, Vendor PricingWeighted average life2.51.1 - 5.64.1 years4.03.0 years

Fair Value atValuationUnobservableWeighted
$ in thousandsDecember 31, 20182019TechniqueInputRangeAverage
GSE CRT Embedded Derivatives22,77110,281 
Market Comparables, Vendor PricingWeighted average life2.91.1 - 5.94.2 years4.32.9 years
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These significant unobservable inputs change according to market conditions and security performance. We estimate the weighted average life of GSE CRTs in order to identify GSE corporate debt with a similar maturity. We obtain our weighted average life estimates from a third party provider. Although weighted average life is a significant input, changes in weighted average life may not have an explicit directional impact on the fair value measurement.

The following table summarizes the significant unobservable input used in the fair value measurement of our commercial loan:
27
Fair Value atValuationUnobservable
$ in thousandsMarch 31, 2020TechniqueInputRate
Commercial Loan22,577  Discounted Cash FlowDiscount rate16.4 %

Table of Contents


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 March 31, 20192020 and December 31, 2018:2019:
 March 31, 2020December 31, 2019
$ in thousandsCarrying
Value		Estimated
Fair Value		Carrying
Value		Estimated
Fair Value
Financial Assets
Commercial loan, held-for-investment (1)
N/A  N/A  24,055  24,397  
FHLBI stock74,250  74,250  74,250  74,250  
Total74,250  74,250  98,305  98,647  
Financial Liabilities
Repurchase agreements6,287,746  6,284,295  17,532,303  17,534,344  
Secured loans1,350,000  1,350,000  1,650,000  1,650,000  
Total7,637,746  7,634,295  19,182,303  19,184,344  
 March 31, 2019 December 31, 2018
$ in thousands
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Assets       
Commercial loans, held-for-investment24,454
 24,732
 31,582
 31,826
FHLBI stock74,250
 74,250
 74,250
 74,250
Total98,704
 98,982
 105,832
 106,076
Financial Liabilities       
Repurchase agreements16,824,387
 16,825,642
 13,602,484
 13,602,050
Secured loans1,650,000
 1,650,000
 1,650,000
 1,650,000
Total18,474,387
 18,475,642
 15,252,484
 15,252,050
(1)We elected the fair value option for our commercial loan on January 1, 2020.
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 our commercial loansloan, held-for-investment, included in "Other assets" on our condensed consolidated balance sheets,sheet as of December 31, 2019, is a Level 3 fair value measurement. Subsequent to the origination or purchase, commercial loan investments are valued on a monthly basisThe fair value was determined by an independent third party valuation agentpricing service using a discounted cash flow technique.analysis.
•The estimated fair value of FHLBI stock, included in "Other assets" on our condensed consolidated balance sheets, is a Level 3 fair value measurement. FHLBI stock may only be sold back to the FHLBI at its discretion at par. As a result, the cost of the FHLBI stock approximates its fair value.
•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.
•The estimated fair value of secured loans is a Level 3 fair value measurement. The secured loans have floating rates based on an index plus a spread and the spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these secured loans are at market, and thus the carrying amount approximates fair value.

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Note 11 – Related Party Transactions
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 months ended March 31, 2019,2020, we reimbursed our Manager $183,000$242,000 (March 31, 2018: $214,000)2019: $183,000) for costs of support personnel that are fully dedicated to our business.
We have invested $62.0$2.6 million as of March 31, 20192020 (December 31, 2018: $131.92019: $154.0 million) in money market or mutual funds managed by affiliates of our Manager. The investments are reported as cash and cash equivalents on our condensed consolidated balance sheets.sheets as they are highly liquid and have original or remaining maturities of three months or less when purchased.
Management Fee Expense
We payEffective October 1, 2019, our management 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.
Prior to October 1, 2019, we paid our Manager a management fee equal to 1.50% of our stockholders’ equity per annum. The fee iswas calculated and payable quarterly in arrears. For purposes of calculating the management fee, stockholders’ equity iswas equal to the sum of the net proceeds from all issuances of equity securities since inception including proceeds from the issuance of operating partnership units to an affiliate of our Manager, plus retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in then current or prior periods), less any amount paid to repurchase common stock since inception. StockholdersStockholders' equity excludesexcluded (i) any unrealized gains, losses or other items that dodid not affect realized net income (regardless of whether such items arewere included in other comprehensive income or loss, or in net income); (ii) cumulative net realized losses that are not attributable to permanently impaired investments and that relaterelated to the investments for which market movement iswas accounted for in other comprehensive income; provided, however, that such adjustment shalldid not exceed cumulative unrealized net gains in other comprehensive income; (iii) one-time events pursuant to

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changes in U.S. GAAP; and (iv) certain non-cash items after discussions between our Manager and our independent directors and approval by a majority of our independent directors.
We do not pay any management fees on our investments in unconsolidated ventures that are managed by an affiliate of our Manager.
Expense Reimbursement
We are required to reimburse our Manager for our operating expenses incurred on our behalf, including directors and officers insurance, accounting services, auditing and tax 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 months ended March 31, 20192020 and 2018.2019.
Three Months Ended March 31,Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Incurred costs, prepaid or expensed1,604
 1,492
Incurred costs, prepaid or expensed2,214  1,604  
Incurred costs, charged against equity as a cost of raising capital320
 165
Incurred costs, charged against equity as a cost of raising capital62  320  
Total incurred costs, originally paid by our Manager1,924
 1,657
Total incurred costs, originally paid by our Manager2,276  1,924  
Termination Fee
If we terminate our management agreement, we owe our Manager a termination fee equal to three3 times the sum of our average annual management fee during the 24-month period before termination, calculated as of the end of the most recently completed fiscal quarter.
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Note 12 – Stockholders’ Equity
Preferred Stock
Holders of our Series A 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. Dividends are 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.
As of July 27, 2017, we hadhave the option to redeem shares of our Series A Preferred Stock for $25.00 per share, plus any accumulated and unpaid dividends through the date of redemption. 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 prior to those times, except under circumstances intended to preserve our qualification as a REIT or upon the occurrence of a change in control.
In March 2019, we entered into an equity distribution agreement with a placement agent under which we may sell up to 7,000,000 shares of our preferred stock from time to time in at-the-market or privately negotiated transactions. These shares are registered with the SEC under our automatic shelf registration statement (as amended and/or supplemented). As of March 31, 2019, weWe have not sold any shares of preferred stock under thethis equity distribution agreement.

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this Quarterly Report.
Common Stock
On February 7, 2019,6, 2020, we completed a public offering of 16,100,00020,700,000 shares of common stock at the price of $15.73$16.78 per share. Total net proceeds were approximately $249.5$347.0 million after deducting estimated offering costs.
In March 2019, we amended our equity distribution agreement, dated December 18, 2017, with a placement agent under which weWe may sell up to 17,000,000 shares of our common stock from time to time in at-the-market or privately negotiated transactions.transactions under an equity distribution agreement with a placement agent. These shares are registered with the SEC under our automatic shelf registration statement (as amended and/or supplemented). During the three months ended March 31, 2020, we did not issue any shares of common stock under the equity distribution agreement. During the three months ended March 31, 2019, we issued 572,000 shares of common stock under the equity distribution agreement for proceeds of $9.1 million, net of approximately $193,000 in commissions and fees.
Share Repurchase Program
During the three months ended March 31, 20192020 and 2018,2019, we did not0t repurchase any shares of our common stock. As of March 31, 2019,2020, we had authority to purchase 18,239,08218,163,982 shares of our common stock through our share repurchase program.
Share-Based Compensation
We established the 2009 Equity Incentive Plan for grants of common stock and other equity based awards to our independent directors and officers and employees of our Manager and its affiliates (the "Incentive Plan"). Under the Incentive Plan, a total of 1,000,000 shares of common stock are authorized for issuance. As of March 31, 2019, 748,492 shares of common stock remain available for future issuance under the Incentive Plan. The Incentive Plan was scheduled to terminate on June 30, 2019 but was amended and restated as of May 3, 2019 extending the term an additional ten years. See Note 15 - "Subsequent Events" for a description of the amended Incentive Plan terms.
We recognized compensation expense of approximately $113,000 (March 31, 2018: $93,000) for shares issued2019: $113,000) related to awards to our independent directors under theour 2009 Equity Incentive Plan ("our Incentive Plan") for the three months ended March 31, 2019.2020. During the three months ended March 31, 20192020 and 2018,2019, we issued 7,0656,170 shares and 7,1777,065 shares of common stock, respectively, to our independent directors. The fair market value of the shares granted was determined by the closing stock market price on the date of the grant. The grants vested immediately.
We recognized compensation expense of approximately $19,000$18,000 (March 31, 2018: $14,000)2019: $19,000) for the three months ended March 31, 20192020 for restricted stock units awarded to employees of our Manager and its affiliates under theour Incentive Plan. Our Manager reimburses us for the cost of these restricted stock awards under the terms of our management agreement. At March 31, 2019,2020, there was approximately $185,000$155,000 of total unrecognized compensation cost related to restricted stock unit awards that is expected to be recognized over a period of up to 48 months, with a weighted-average remaining vesting period of 2422 months.
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The following table summarizes the activity related to restricted stock units awarded to employees of our Manager and its affiliates for the three months ended March 31, 2019.2020.
Three Months Ended March 31,
2020
 Restricted Stock Units
Weighted Average Grant Date Fair Value (1)
Unvested at the beginning of the period12,520  $12.84  
Shares granted during the period2,996  16.08  
Shares vested during the period(4,844) 14.82  
Unvested at the end of the period10,672  $12.85  
 Three Months Ended March 31,
 2019
 Restricted Stock Units 
Weighted Average Grant Date Fair Value (1)
Unvested at the beginning of the period11,051
 $14.55
Shares granted during the period6,189
 15.92
Shares vested during the period(4,720) 14.48
Unvested at the end of the period12,520
 $15.25
(1)(1)The grant date fair value of restricted stock awards is based on the closing market price of our common stock at the grant date.

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restricted stock awards is based on the closing market price of our common stock at the grant date.
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 months ended March 31, 20192020 and 2018.2019. The tables exclude gains and losses on MBS and GSE CRTs that are accounted for under the fair value option.
Three Months Ended March 31, 2020
$ in thousandsEquity method investmentsAvailable-for-sale securitiesDerivatives and hedgingTotal
Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net—  (186,605) —  (186,605) 
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net—  36,957  —  36,957  
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense—  —  (10,067) (10,067) 
Currency translation adjustments on investment in unconsolidated venture480  —  —  480  
Total other comprehensive income (loss)480  (149,648) (10,067) (159,235) 
AOCI balance at beginning of period(645) 213,701  75,907  288,963  
Total other comprehensive income (loss)480  (149,648) (10,067) (159,235) 
AOCI balance at end of period(165) 64,053  65,840  129,728  

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Three Months Ended March 31, 2019Three Months Ended March 31, 2019
$ in thousandsEquity method investments Available-for-sale securities Derivatives and hedging Total$ in thousandsEquity method investmentsAvailable-for-sale securitiesDerivatives and hedgingTotal
Total other comprehensive income (loss)       Total other comprehensive income (loss)
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net—
 52,349
 —
 52,349
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net—  52,349  —  52,349  
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net—
 10,147
 —
 10,147
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net—  10,147  —  10,147  
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense—
 —
 (5,851) (5,851)Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense—  —  (5,851) (5,851) 
Currency translation adjustments on investment in unconsolidated venture(276) —
 —
 (276)Currency translation adjustments on investment in unconsolidated venture(276) —  —  (276) 
Total other comprehensive income (loss)(276) 62,496
 (5,851) 56,369
Total other comprehensive income (loss)(276) 62,496  (5,851) 56,369  
       
AOCI balance at beginning of period513
 120,664
 99,636
 220,813
AOCI balance at beginning of period513  120,664  99,636  220,813  
Total other comprehensive income (loss)(276) 62,496
 (5,851) 56,369
Total other comprehensive income (loss)(276) 62,496  (5,851) 56,369  
AOCI balance at end of period237
 183,160
 93,785
 277,182
AOCI balance at end of period237  183,160  93,785  277,182  

 Three Months Ended March 31, 2018
$ in thousandsEquity 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—
 (132,317) —
 (132,317)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net—
 9,237
 —
 9,237
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense—
 —
 (6,539) (6,539)
Currency translation adjustments on investment in unconsolidated venture312
 —
 —
 312
Total other comprehensive income (loss)312
 (123,080) (6,539) (129,307)
        
AOCI balance at beginning of period947
 136,188
 123,894
 261,029
Total other comprehensive income (loss)312
 (123,080) (6,539) (129,307)
Other comprehensive income/(loss) attributable to non-controlling interest(4) 1,552
 82
 1,630
AOCI balance at end of period1,255
 14,660
 117,437
 133,352

Amounts recorded in AOCI before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining original life of the interest rate swap agreements.

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Dividends
On March 24, 2020, we announced that we would delay the payment of quarterly dividends on our common and preferred stock to preserve liquidity until we could more accurately assess the impact of volatile market conditions related to the COVID-19 pandemic. We had declared a cash dividend of $0.50 per share on our common stock on March 17, 2020 that was to be paid on April 28, 2020 to all stockholders of record as of March 30, 2020; a cash dividend of $0.4844 per share on our Series A Preferred Stock on March 17, 2020 that was to be paid on April 27, 2020 to stockholders of record as of April 1, 2020; a cash dividend of $0.4844 per share on our Series B Preferred Stock on February 18, 2020 that was to be paid on March 27, 2020 to stockholders of record as of March 5, 2020 and a cash dividend of $0.46875 per share on our Series C Preferred Stock on February 18, 2020 that was to be paid on March 27, 2020 to stockholders of record as of March 5, 2020. On May 9, 2020, our board of directors approved payment of the followingpreviously declared preferred dividends in cash and payment of our common stock dividend in a combination of cash and shares of our common stock as described in Note 15 - "Subsequent Events".
The table below summarizes the dividends we declared during the three months ended March 31, 20192020 and 2018:
$ in thousands, except per share amountsDividends Declared
Series A Preferred StockPer Share In Aggregate Date of Payment
2019     
March 18, 20190.4844
 2,713
 April 25, 2019
2018     
March 15, 20180.4844
 2,713
 April 25, 2018
2019:
$ in thousands, except per share amountsDividends Declared
Series B Preferred StockPer Share In Aggregate Date of Payment
2019     
February 14, 20190.4844
 3,003
 March 27, 2019
2018     
February 15, 20180.4844
 3,003
 March 27, 2018
$ in thousands, except per share amountsDividends Declared
Series A Preferred StockPer ShareIn AggregateDate of Payment
2020
March 17, 20200.4844  2,713  May 22, 2020
2019
March 18, 20190.4844  2,713  April 25, 2019
$ in thousands, except per share amountsDividends Declared
Series C Preferred StockPer Share In Aggregate Date of Payment
2019     
February 14, 20190.46875
 5,391
 March 27, 2019
2018     
February 15, 20180.46875
 5,391
 March 27, 2018

$ in thousands, except per share amountsDividends Declared
Common StockPer Share In Aggregate Date of Payment
2019     
March 18, 20190.45
 57,720
 April 26, 2019
2018     
March 15, 20180.42
 46,887
 April 26, 2018
$ in thousands, except per share amountsDividends Declared
Series B Preferred StockPer ShareIn AggregateDate of Payment
2020
February 18, 20200.4844  3,003  May 22, 2020
2019
February 14, 20190.4844  3,003  March 27, 2019

$ in thousands, except per share amountsDividends Declared
Series C Preferred StockPer ShareIn AggregateDate of Payment
2020
February 18, 20200.46875  5,391  May 22, 2020
2019
February 14, 20190.46875  5,391  March 27, 2019


$ in thousands, except per share amountsDividends Declared
Common StockPer ShareIn AggregateDate of Payment
2020
March 17, 20200.50  82,483  June 30, 2020
2019
March 18, 20190.45  57,720  April 26, 2019


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Note 13 – Earnings (Loss) per Common Share
Earnings (loss) per share for the three months ended March 31, 20192020 and 20182019 is computed as follows:
Three Months Ended March 31,
In thousands except per share amounts20202019
Numerator (Income)
Basic Earnings:
Net income (loss) available to common stockholders(1,627,299) 127,683  
Denominator (Weighted Average Shares)
Basic Earnings:
Shares available to common stockholders156,771  121,098  
Effect of dilutive securities:
Restricted stock awards—  12  
Dilutive Shares156,771  121,110  
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic(10.38) 1.05  
Diluted(10.38) 1.05  

The following potential common shares were excluded from diluted earnings per share for the three months ended March 31, 2020 as the effect would be antidilutive: 12,065 for restricted stock awards.
 Three Months Ended March 31,
In thousands except per share amounts2019 2018
Numerator (Income)   
Basic Earnings:   
Net income available to common stockholders127,683
 41,471
Effect of dilutive securities:   
Income allocated to exchangeable senior notes—
 1,621
Income allocated to non-controlling interest—
 671
Dilutive net income available to stockholders127,683
 43,763
Denominator (Weighted Average Shares)   
Basic Earnings:   
Shares available to common stockholders121,098
 111,629
Effect of dilutive securities:   
Restricted stock awards12
 20
Non-controlling interest OP units—
 1,425
Exchangeable senior notes—
 4,803
Dilutive Shares121,110
 117,877
Earnings per share:   
Net income attributable to common stockholders   
Basic1.05
 0.37
Diluted1.05
 0.37

Note 14 – Commitments and Contingencies
Commitments and Contingencies
Commitments and contingencies may arise in the ordinary course of business. Our material off-balance sheet commitments as of March 31, 20192020 are discussed below.
As discussed in Note 5 - "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 in the partnerships as a limited partner. The entities are structured such that capital commitments are to be drawn down over the life of the partnership as investment opportunities are identified. As of March 31, 20192020 and December 31, 2018,2019, our undrawn capital and purchase commitments were $7.6$6.4 million and $10.0$6.5 million, respectively.
As discussed in Note 5 - "Other Assets", we have funded our portion of a commitmentinvested in a loan participation. The remainderparticipation interest in a secured loan. We had an unfunded commitment to provide future financing for this loan participation interest of our commitment will be funded over the two year term of the loan based upon the financing needs of the borrower. As$49.6 million as of March 31, 2019, we2020. We sold our loan participation interest on April 1, 2020 for $21.6 million in cash and no longer have an unfunded commitment of $21.2 million.any future financing commitments related to this loan participation interest.
As discussed in Note 12 - "Stockholders' Equity", we have programs under which we may sell shares of our common and preferred stock from time to time in at-the-market or privately negotiated transactions. As of March 31, 2019, we had committed to sell 90,000 shares of common stock at an average price of $15.83 per share for total proceeds of $1.4 million, net of approximately $30,000 in commissions and fees that settled in April 2019.
We have entered into agreements with financial institutions to guarantee certain obligations of our subsidiaries. We would be required to perform under these guarantees in the event of certain defaults. We have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
Note 15 – Subsequent Events
Sales of Investments and Repayment of Debt
Due to the ongoing impact of the COVID-19 pandemic and resulting disruption in the financial markets, we took various actions during the second quarter of 2020 to manage our investment portfolio and generate liquidity. Between April 1, 2020 and May 31, 2020, we sold additional MBS and GSE CRTs with a fair value of $6.2 billion at March 31, 2020 for cash proceeds of $5.9 billion and our loan participation interest for cash proceeds of $21.6 million. We repaid all of our repurchase agreements and $512.5 million of FHLBI secured loans with proceeds from these asset sales and the return of cash margin previously pledged on our repurchase agreements.
In April 2020, FHLBI modified the terms of our secured loans because we were not in compliance with all of the financial covenants of our secured loan agreements as of March 31, 2020. The modified loan terms require repayment of our secured loans by December 2020 but allow for repayment at any time without penalty. We intend to repay our secured loans by December 2020 with proceeds from sales of mortgage-backed securities that are collateralizing our secured loans. We determined that the modification of our loan terms was a troubled debt restructuring that did not impact the accounting for our secured loans. The balance of our secured loans is $837.5 million as of the filing date of this Quarterly Report.
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As discussed in Note 5 - "Other Assets," IAS Services LLC is required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of secured loans from the FHLBI. FHLBI redeemed a portion of our stock in connection with the repayment of our secured loans discussed above. The balance of our FHLBI stock is $37.7 million as of the filing date of this Quarterly Report.
Portfolio Update
As of May 31, 2020, we have a total investment portfolio, excluding cash and Agency CMBS purchase commitments, of approximately $1.6 billion consisting of 92% commercial credit investments, 7% residential credit investments, and 1% Agency mortgage-backed securities; approximately $540 million of the investment portfolio is unencumbered. Our portfolio has not materially changed between May 31, 2020 and the filing date of this Quarterly Report, and we are not a party to any interest rate swap contracts as of the filing date of this Quarterly Report.
Between April 1, 2020 and May 31, 2020, we repaid the outstanding balance of our repurchase agreements (approximately $6.3 billion as of March 31, 2020). In addition, we repaid $512.5 million of our secured loans, reducing the outstanding balance of our secured loans to $837.5 million as of the filing date of this Quarterly Report.
As of May 31, 2020, we have a cash balance of $327.8 million, approximately $55.3 million of which is posted with FHLBI as collateral for our remaining secured loans.
Dividends
On May 3, 2019,9, 2020, our shareholdersboard of directors approved payment of the 2009 Equity Incentive Plan (the "Incentive Plan") as amended and restated. Under the amended and restated Incentive Plan, the numberpreviously declared dividend of shares$0.50 per share of common stock available for issuance(the "first quarter common stock dividend"). The first quarter common stock dividend will be paid on June 30, 2020 in a combination of cash and shares of the Company's common stock to stockholders of record as of May 21, 2020. The amount of cash paid to shareholders, other than cash paid in lieu of fractional shares, will not exceed 10% of the aggregate amount of the dividend. Shares issued in connection with our common stock dividend will be reflected in earnings per share prospectively. We recorded our first quarter common stock dividend as a reduction of retained earnings of $82.5 million in the three months ended March 31, 2020.

On May 9, 2020, our board of directors also approved payment of the previously declared accumulated dividends on our Series A, Series B and Series C Preferred Stock described above. We paid our preferred dividends that were in arrears on May 22, 2020.
We declared the following dividends on our Series B and Series C Preferred Stock on May 9, 2020 to our stockholders of record as of June 5, 2020: a Series B Preferred Stock dividend of $0.4844 per share payable on June 29, 2020 and a Series C Preferred Stock dividend of $0.46875 per share payable on June 29, 2020.
We declared the following dividends on our common stock and Series A Preferred Stock on June 17, 2020: a common stock dividend of $0.02 per share payable on July 28, 2020 to stockholders of record as of July 6, 2020 and a Series A Preferred Stock dividend of $0.4844 per share payable on July 27, 2020 to stockholders of record as of July 1, 2020.

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our independent directors and officers and employees of our Manager and its affiliates was reduced to 200,000, and the term of the Incentive Plan was extended for an additional ten years.





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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In this quarterly report on Form 10-Q, or this “Report,“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,” “continue,” “intend,” “should,“project,” “may”“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. 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 economic and operational impact of the COVID-19 pandemic;

•our business and investment strategy;

•our investment portfolio;portfolio and expected investments;
•our projected operating results;
•general volatility of financial markets and 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 modification programs, 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 the continuation of re-investment of principal payments, 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 investments;
•our expected book value per common share;
•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 any margin calls;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 foreclosure practices of third parties and related uncertainty in the timing of collateral disposition;
•our reliance on third parties in connection with services related to our target assets;
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•disruption of our information technology system;
•effects of hedging instruments on our target assets;
•rates of default or decreased recovery rates on our target assets;

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•modifications to whole loans or loans underlying securities;
•the degree to which our hedging strategies may or may not protect us from interest rate volatility;volatility and foreign currency exchange rate;
•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”);
•availability of investment opportunities in mortgage-related, real estate-related and other securities;
•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;
•availability of qualified personnel of our Manager;
•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 loan loss reserves;
•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.” 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.
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 this Report.
OverviewExecutive Summary
We are a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities ("MBS") and mortgage loans. Our objective is to provide attractive risk-adjusted returns to our investors, primarily through dividends and secondarily through capital appreciation. To achieve this objective, we primarily investhave historically invested in the following:
•Residential mortgage-backed securities (“RMBS”("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");
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•Commercial mortgage-backed securities (“CMBS”("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");


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•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“("non-Agency RMBS”RMBS");
•CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“("non-Agency CMBS”CMBS"); 
•Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");
•Residential and commercial mortgage loans; and
•Other real estate-related financing arrangements.
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 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”"Investment Company" under the 1940 Act. We are externally managed and advised by Invesco Advisers, Inc., our Manager, which is an indirect, wholly-owned subsidiary of Invesco Ltd.
Capital Activities
On February 7, 2019, we completed a public offering of 16,100,000 shares of common stock at the price of $15.73 per share. Total net proceeds were approximately $249.5 million after deducting estimated offering expenses.
In March 2019, we amended our equity distribution agreement, dated December 17, 2019, with a placement agent under which we may sell up to 17,000,000 shares of our common stock from time to time in at-the-market or privately negotiated transactions. These shares are registered with the SEC under our automatic shelf registration statement (as amended and/or supplemented). During the three monthsquarter ended March 31, 2019,2020, we issued 572,000 sharesexperienced unprecedented market conditions as a result of common stockthe global COVID-19 pandemic. Due to significant spread widening in both Agency and non-Agency securities, we received an unusually high number of margin calls from counterparties. On March 23, 2020, we notified our financing counterparties that we were not in a position to fund the margin calls we received on March 23, 2020, and that we did not expect to be in a position to fund the anticipated volume of future margin calls under our financing arrangements in the equity distribution agreementnear term as a result of market disruptions created by the COVID-19 pandemic. We engaged third party financial and legal advisors to assist us in restructuring our debt with our financing counterparties. To generate liquidity and reduce leverage,we sold MBS and GSE CRTs for cash proceeds of $9.1$16.2 billion and repaid $11.2 billion of our repurchase agreements during the quarter ended March 31, 2020. We also terminated our entire interest rate swap portfolio as our exposure to interest rate risk decreased as we sold Agency assets.
We have continued to focus on generating liquidity and reducing leverage in the second quarter of 2020. As of May 31, 2020, we have a cash balance of $327.8 million, netapproximately $55.3 million of commissionswhich is posted with FHLBI as collateral for our remaining secured loans. Between April 1, 2020 and fees.
OnMay 31, 2020, we sold additional MBS and GSE CRTs with a fair value of $6.2 billion at March 18, 2019,31, 2020 for cash proceeds of $5.9 billion and our loan participation interest for cash proceeds of $21.6 million. As of May 31, 2020, we declaredhave a total investment portfolio, excluding cash and Agency CMBS purchase commitments, of approximately $1.6 billion consisting of 92% commercial credit investments, 7% residential credit investments, and 1% Agency mortgage-backed securities. Approximately $540 million of our investment portfolio is unencumbered. We have elected to hold our remaining non-Agency CMBS and GSE CRTs for a period of time given our view that these investments could benefit from actions taken by the following dividends:
a dividendfederal government to stimulate the economy and the market for these securities. Our investment portfolio has not materially changed between May 31, 2020 and the filing date of $0.45 per share of common stock paid on April 26, 2019 to stockholders of recordthis Quarterly Report. In addition, we have not entered into any interest rate swap contracts during the second quarter as of the closefiling date of businessthis Quarterly Report
Between April 1, 2020 and May 31, 2020, we repaid the outstanding balance of our repurchase agreements (approximately $6.3 billion as of March 31, 2020). In addition, we repaid $512.5 million of our secured loans, reducing the outstanding balance of our secured loans to $837.5 million as of the filing date of this Quarterly Report.
We also paid our dividends that were in arrears on March 29, 2019; and
a dividend of $0.4844 per share ofour Series A Preferred, Stock paid on April 25, 2019 to stockholders of record as of the close of business on April 1, 2019.
On February 14, 2019, we declared the following dividends:
a dividend of $0.4844 per share of Series B Preferred, Stock paid on March 27, 2019 to stockholders of record as of the close of business on March 5, 2019; and
a dividend of $0.46875 per share of Series C Preferred Stock on May 22, 2020. We will pay our first quarter 2020 common stock dividend of $0.50 per share on June 30, 2020 in a combination of cash and common shares. In addition, on June 17, 2020, we declared a second quarter 2020 common stock cash dividend of $0.02 per common share that will be paid on March 27, 2019 to stockholders of record as ofJuly 28, 2020.
While the close of business on March 5, 2019.
During the three months ended March 31, 2019, we did not repurchase any shares of our common stock.
Factors Impacting Our Operating Results
Our operating results can be affected byFederal Reserve (the “Fed”) has taken a number of factors and primarily depend on the level of our net interest income and the market value of our assets. Our net interest income, which includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market interest rates and prepayment speeds, as measured by the constant prepayment rate (“CPR”) on our target assets. Interest rates and prepayment speeds vary accordingproactive measures to the type of investment, conditionsbolster liquidity in the financial markets, competitionsecond quarter of 2020, we expect market conditions for the mortgage REIT industry to continue to be challenging. We believe our current cash balances and cash flows from operations will meet our near-term liquidity requirements. Our secured loans are due by December 2020, and we intend to repay our secured loans with proceeds from sales of non-Agency CMBS assets that are currently collateralizing these loans.
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In the near-term, we intend to deploy capital into attractive opportunities in Agency securities and seek to finance these securities with prudent levels of debt. Further, we will evaluate potential credit investments that do not rely on short-term or mark-to-market financing. To further strengthen our balance sheet and position ourselves for future investment opportunities, we have explored and will continue to explore additional sources of financing including issuances of debt and equity securities and other factors, noneforms of whichlong-term financing arrangements. However, no assurance can be predicted withgiven that we will be able to access any certainty. The market valueadditional sources of our assets can be impacted by credit spread premiums (yield advantage over U.S. Treasury notes) and the supply of, and demand for, target assets in which we invest.financing.
Market Conditions
Macroeconomic factors that affect our business include interest rate spread premiums, governmental policy initiatives, residential and commercial real estate prices, credit availability, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.
Financial conditions eased significantly duringDuring the first quarter of 2019, sharply reversing2020 and continuing into the tightening trend we experienced during the final months of 2018. Volatility fell across the fixed income and equity markets as investors became

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more supportive of risk assets andsecond quarter, financial markets rebounded fromexperienced significant volatility as a result of the lows of late December 2018. Equity markets hadCOVID-19 pandemic. On March 11, 2020, the World Health Organization characterized COVID-19 as a strong start to 2019,pandemic, and on March 13, 2020 a national emergency in the United States was declared. Economic activity has been severely impacted as the S&P 500 Index returned over 13%pandemic resulted in stay-at-home orders and widespread business shutdowns. The precipitous decline in business activity has substantially increased unemployment levels and driven a sharp contraction in GDP to levels not seen in decades. Reactions to the impacts of the pandemic led to swift and severe financial market dislocations during the first quarter, while the NASDAQ returned over 16%. Investor sentiment was bolstered as the Federal Open Market Committee (“FOMC”) signaled that they likely would not raise the Federal Funds rate in the coming quarters. Commodity prices rebounded along with equities, as the CRB Commodity Price Index increased by 8.2% during the first quarter and WTI Crude increased by 29.3%.quarter.
The U.S. economy appears to be growing at a moderate pace, and the labor market remains positive. Monthly gains in Nonfarm Payrolls averaged 180,000 for the first quarter, slowing from the 2018 average of 223,000. The unemployment rate remained close to multi-year lows at 3.8%. The consensus forecast for GDP growth in 2019 is 2.4%, with the consensus estimates for 2020 and 2021 at 1.9% and 1.8%, respectively.
Inflation remained subdued, with the U.S. Personal Consumption Expenditure Core Price Index remaining below the Federal Reserve’s inflation target of 2% in January. Implied breakeven rates on Treasury Inflation Protected securities, which reflect the markets' expectation of future inflation rates, rose during the quarter, with the implied 2- and 5-year inflation rates ending the first quarter at 1.83% and 1.79%, respectively. The FOMC did not take any action during its January and March meetings, and communication out of the central bank caused market expectations for further FOMC policy action to readjust once again. Over the course ofDuring the first quarter, the pricingsignificant dislocation in the financial markets caused, among other things, credit spread widening, a marked decrease in interest rates and unprecedented illiquidity in Agency and non-Agency MBS trading and financing markets. We expect this volatility to persist in the near term due to the continued uncertainty around the COVID-19 pandemic duration and ultimate impact. Further, we expect the COVID-19 pandemic to negatively impact real estate markets. The lodging and retail property markets are likely to experience the greatest impact due to travel restrictions and a sharp slowdown in discretionary consumption. In the retail sector, despite long-term leases, tenants that are not open for business may find it difficult to meet rent obligations, and may forego payments or seek relief in the months ahead. Real estate loans are likely to experience increased delinquencies and defaults, which could impact the fundamental performance of our investments.
The Fed responded to the COVID-19 pandemic with a series of measures aimed at returning stability to the financial markets and fostering economic recovery. These measures included cutting the federal funds futures contracts went from implying no policy action during 2019 to implying one cut in each of 2019 and 2020. This caused Treasury rates to fall across the maturity spectrum, with the 2-year Treasurytarget rate ending the first quarter down 25 basis points at 2.26% and 10-year Treasury rates falling 28by 150 basis points to 2.41%.0%-0.25% on March 15, 2020 and committing to purchases of U.S. Treasuries and Agency MBS. These actions helped improve Agency RMBS and Agency CMBS liquidity and, eventually, market prices. Additionally, on March 23, 2020, the Fed announced it would purchase debt issued by U.S. investment grade rated companies and established the Term Asset-Backed Securities Loan Facility (“TALF”) to support the flow of credit to consumers and businesses. Initially, the TALF provided financing for asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration. Subsequently, the Fed expanded the TALF to cover secondary market triple-A rated conduit non-Agency CMBS. Since their inclusion, triple-A rated non-Agency CMBS has recorded some recovery of the spread widening experienced in March. We expect this trend to continue as investors look to capitalize on favorable financing made available by the Fed. We also believe bonds rated below triple-A have the potential to benefit from increased investor demand as more senior bonds experience price appreciation.
Mortgage-backed securities performed well duringIn addition to the Fed purchases and facilities mentioned above, the repurchase financing markets for high-quality assets such as Treasuries and Agency RMBS continued to be supported by substantial Fed action in the form of upsized open market operations, both in the overnight and term markets. These facilities were established in late 2019 and were significantly increased in the first quarter of 2019. Agency mortgages outperformed similar duration Treasuries during2020.
The U.S. Congress has also responded to the quarter, with agency poolsCOVID-19 pandemic by passing three rounds of fiscal stimulus measures, the most notable being the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which included relief measures for households and businesses directly or indirectly impacted by the virus. The CARES Act includes provisions for COVID-19 related temporary forbearance on federally backed mortgage loans, which allows borrowers of loans guaranteed by collateralFannie Mae, Freddie Mac and Ginnie Mae to suspend making principal and interest payments for a period of up to 360 days if they are facing hardship. Following the temporary forbearance period, mortgage servicers have to provide several options to impacted borrowers, including a repayment schedule or loan modification, depending on the borrowers’ circumstances. We believe the provision of forbearance and loan modifications will substantially reduce borrower defaults and loan losses relative to levels that offered protection against prepayment risk performing particularly well. The outlookwould have likely occurred without these actions.
Despite the unprecedented measures discussed above, market conditions continue to be challenging for asset classes that have not been directly targeted by government intervention. While the markets for Agency RMBS is mixed, as prepayment risk is expectedand Agency CMBS have largely recovered in response to increase in the coming quarters due to the seasonal impact of housing activity and the increase in refinance activity given lower mortgage rates. However, the shift in monetary policylarge-scale purchases by the Federal Reserve has reduced volatilityFed, the markets for non-Agency CMBS, non-Agency RMBS and funding costs, providing a favorable environment for the sector. Beginning in October of this year, the Federal Reserve will begin reinvesting paydowns from the MBS portion of their balance sheet into Treasuries, which should produce a modest headwind for the sectorGSE CRTs have yet to fully recover as the balance sheet slowly shifts into an all-Treasury portfolio.
During the first quarter, spreads (defined as the yield in excess of risk-free rates) on Agency CMBS, non-Agency CMBS and GSE CRT securities tightened steadily as volatility fell and investor’s risk appetites returned. Fundamentals in both commercial and residential housing remain solid, lending further support to asset prices. Financing markets remained accommodative and repurchase agreement rates settled down after experiencing typical year end bank balance sheet pressures.
We expect the U.S. will continue to experience moderate, albeit slowing, economic growth, and that core inflation will remain close to the Federal Reserve’s policy objective of 2%. Other concerns include the actions of central banks and their impact on the global economy, the sustainability of China's economic growth, and the potentialultimate impact of the Brexit process and resulting stress in the European banking system.COVID-19 pandemic on these credit assets remains unclear.
In addition, the regulatory landscape for our repurchase agreement counterparties continues to evolve, which may affect their funding methods and lending practices. While we are not directly subject to compliance with the implementation
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Proposed Changes to LIBOR
On July 27,In 2017, the Chief Executive of the U.K. Financial Conduct Authority (the "FCA" ),“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 on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be phased out or the methodology for determining LIBOR will be modified by 2021. The Alternative Reference Rates Committee ("ARRC"(“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"(“SOFR”) is the rate that represents best practice as the alternative to USD-LIBORLIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR,LIBOR, and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR.LIBOR.
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. 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, and it is possible that not all of our assets and liabilities will transition 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. Industry organizations are attempting to structure the spread calculation in an objective manner, but there is no assurance that all asset types or securitization vehicles will use the same spread. We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management.
We have material contracts that are indexed to USD-LIBORLIBOR 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.

Our Manager is finalizing its global assessment of exposure in relation to our LIBOR-based instruments and benchmarks and is prioritizing the mitigation of risks associated with the forecasted changes to financial instruments and performance benchmarks referencing existing LIBOR rates.
In October 2019, the IRS and Treasury proposed regulations that are expected to provide taxpayers relief from adverse impacts resulting from the transition away from LIBOR to an alternative reference rate. The proposed regulations make clear that a change in the reference rate (and associated alterations to payment terms) of a financial instrument is generally not considered a taxable event, provided the fair value of the modified instrument is substantially equivalent to the fair value of the unmodified instrument.
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 is effective for all entities as of March 12, 2020 through December 31, 2022.
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Investment Activities
As previously discussed, the COVID-19 pandemic caused unprecedented market disruption in the three months ended March 31, 2020. To raise liquidity and reduce leverage, we sold MBS and GSE CRTs for cash proceeds of $16.2 billion. Our equity allocation and investment portfolio composition as of March 31, 2020 were directly impacted by these sales as detailed in the tables below.
The table below shows the allocation of our stockholders' equity as of March 31, 2019,2020, December 31, 20182019 and March 31, 2018:2019:
As of
$ in thousandsMarch 31, 2020December 31, 2019March 31, 2019
Agency RMBS30 %44 %45 %
Agency CMBS20 %16 %5 %
Commercial Credit (1)
38 %28 %32 %
Residential Credit (2)
12 %12 %18 %
Total100 %100 %100 %
 As of
$ in thousandsMarch 31, 2019 December 31, 2018 March 31, 2018
Agency RMBS and Agency CMBS50% 49% 44%
Commercial Credit (1)
32% 33% 36%
Residential Credit (2)
18% 18% 20%
Total100% 100% 100%
(1)Commercial credit includes non-Agency CMBS, Multifamily GSE CRTs, commercial loans and investments in unconsolidated ventures.
(1)Commercial credit includes non-Agency CMBS, commercial loans and investments in unconsolidated ventures.
(2)Residential credit includes non-Agency RMBS, GSE CRTs and a loan participation interest.

(2)Residential credit includes non-Agency RMBS, Single Family GSE CRTs and a loan participation interest.
The table below shows the breakdown of our investment portfolio as of March 31, 2019,2020, December 31, 20182019 and March 31, 2018:2019:
As of
$ in thousandsMarch 31, 2020December 31, 2019March 31, 2019
Agency RMBS:
30 year fixed-rate, at fair value1,421,162  10,524,220  12,716,636  
15 year fixed-rate, at fair value71,166  292,414  352,102  
Hybrid ARM, at fair value2,672  56,893  179,925  
Agency CMO, at fair value300,535  427,512  327,151  
Agency CMBS, at fair value2,278,027  4,767,930  2,001,553  
Non-Agency CMBS, at fair value2,869,051  3,823,474  3,455,806  
Non-Agency RMBS, at fair value568,081  955,671  1,186,896  
GSE CRT, at fair value534,114  923,672  907,529  
Loan participation interest, at fair value21,577  44,654  53,827  
Commercial loan, at amortized cost22,577  24,055  24,454  
Investments in unconsolidated ventures21,088  21,998  24,129  
Total investment portfolio8,110,050  21,862,493  21,230,008  

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 As of
$ in thousandsMarch 31, 2019 December 31, 2018 March 31, 2018
Agency RMBS:     
30 year fixed-rate, at fair value12,716,636
 9,772,769
 7,662,038
15 year fixed-rate, at fair value352,102
 424,254
 2,609,552
Hybrid ARM, at fair value173,521
 554,201
 1,623,538
ARM, at fair value6,404
 105,747
 227,666
Agency CMO, at fair value327,151
 267,691
 253,954
Agency CMBS, at fair value2,001,553
 1,002,510
 —
Non-Agency CMBS, at fair value3,455,806
 3,286,459
 3,189,281
Non-Agency RMBS, at fair value1,186,896
 1,163,682
 1,194,952
GSE CRT, at fair value907,529
 819,329
 861,253
Loan participation interest, at fair value53,827
 54,981
 —
Commercial loans, at amortized cost24,454
 31,582
 184,255
Investments in unconsolidated ventures24,129
 24,012
 28,168
Total Investment portfolio21,230,008
 17,507,217
 17,834,657

DuringPrior to disruption in the financial markets caused by the COVID-19 pandemic, we purchased $4.3 billion of fixed rate Agency RMBS, $435.5 million of Agency CMBS, $56.6 million of non-Agency CMBS and $99.0 million of GSE CRTs during the three months ended March 31, 2019, we purchased $4.1 billion of Agency RMBS and Agency CMBS, $143.9 million of non-Agency CMBS, $75.6 million of non-Agency RMBS and $94.6 million of GSE CRT.2020. We funded these purchases by leveraging the proceeds of our February 2020 common stock issuance and with cash proceeds from our common stock issuances and paydowns and sales of securities. During the three months ended March 31, 2019, we continued to actively manage our investment portfolio, selling most of our ARM and Hybrid ARM securities. We primarily reinvested the proceeds into fixed rate Agency RMBS and Agency CMBS.
As of March 31, 20192020, our holdings of 30 year fixed-rate Agency RMBS representrepresented approximately 60%18% of our total investment portfolio versus 56%48% as of December 31, 20182019 and 43%60% as of March 31, 2018. Most of2019. We have historically focused our holdingspurchases of 30 year fixed-rate Agency RMBS are in specified pools with attractive prepayment characteristics. We have continued to increase our holdings of 30 year fixed-rate Agency RMBS over the past 12 months as the return on equity profile for these securities remained attractive. Return on equity for 30 year fixed-rate Agency RMBS remained accretive due to lower funding costs given changes in the outlook for short-term interest rates. We have focused our purchases on 30 year specified pools priced at modest pay-ups to generic Agency RMBS because those securities have characteristics that reduce prepayment risk. We hold approximately $10.1 million of Agency RMBS as of May 31, 2020.

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March 31, 2020, our holdings of Agency CMBS represented approximately 28% of our total investment portfolio versus 22% as of December 31, 2019 and 9% as of March 31, 2019. Our Agency CMBS holdings as of March 31, 2020 include approximately $507.2 million (December 31, 2019: $96.2 million; March 31, 2019: $221.9 million) of Agency CMBS purchase commitments. We began investinghave historically focused our investments in Agency CMBS issued by Freddie Mac, and Fannie Mae in 2018 and Ginnie Mae that have continued to invest in these securities in 2019. We purchased these securities because we believe they have an attractive convexity and return on equity profile. They offer targeted exposure to multi-family loans and benefit from a guarantee of principal and interest payments from governmental agencies and federally chartered corporations. Further, thecharacteristics that reduce prepayment risk. Our hedging costs for Agency CMBS are economical asrelatively low because they are less sensitive to interest rate risk given limited extension beyond initial expected maturity dates and underlying loan prepayment protection. We hold approximately $192.4 million of Agency CMBS as of May 31, 2020, including $191.6 million of Agency CMBS purchase commitments. We have sold our Agency CMBS holdings as of the filing date of this Quarterly Report.
Our portfolio of investments that have credit exposure includesinclude non-Agency CMBS, non-Agency RMBS, GSE CRTs, a commercial real estate loan, and a loan participation interest. Rather than relying on the rating agencies, we utilize proprietary models as well as third party applications to quantify and monitor the credit risk associated with our portfoliothese holdings. Our analysis generally begins at the underlying asset level, where we gather detailed information on loan, borrower, and property characteristics that inform our expectations for future performance. In addition to base case cash flow projections, we perform a range of scenario stresses to gauge the sensitivity of returns to potential deviations in underlying asset behavior. We perform this detailed credit analysis at the time of initial purchase and regularly throughout the holding period of each investment.
OurAs of March 31, 2020 our holdings of non-Agency CMBS portfolio generally consists of assets originated during and after 2010. These assets continue to benefit from rating agency upgrades, property price appreciation and limited supply. Non-Agency CMBS investments representrepresented approximately 16%35% of our total investment portfolio versus 17% as of December 31, 2019 and 16% as of March 31, 2019.
With respect to 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 New York, California, Texas, Florida and Illinois as detailed in the tables below. The majority of our non-Agency CMBS portfolio is comprised of fixed rate credits that are rated investment grade by a nationally recognized statistical rating organization. The remainder of our assets were originated during and after 2017. We hold approximately $1.5 billion of non-Agency CMBS as of May 31, 2020. Over 87% of non-Agency CMBS are rated single-A (or equivalent) or higher by a nationally recognized statistical rating organization as of May 31, 2020. Further, over 75% of non-Agency CMBS are rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of May 31, 2020.
As of March 31, 2020, our holdings of non-Agency RMBS represented approximately 7% of our total investment portfolio weversus 4% as of December 31, 2019 and 6% as of March 31, 2019. We primarily invest inhold non-Agency RMBS securities collateralized by prime and Alt-A loans. In addition, we have invested in re-securitizations of real estate mortgage investment conduit ("Re-REMIC") RMBS and securitizations of reperforming mortgage loans that we expect to provide attractive risk adjusted returns. We also invest inhold approximately $13.2 million of non-Agency RMBS as of May 31, 2020.
As of March 31, 2020, our holdings of GSE CRTs which haverepresented approximately 7% of our total investment portfolio versus 4% as of December 31, 2019 and 4% as of March 31, 2019. GSE CRTs are unsecured general obligations of the added benefitGSEs that are structured to provide credit protection to the issuer with respect to defaults and other credit events within pools of paying a floating rate coupon, reducing our need to hedge interest rate risk.mortgage loans secured by single family properties that collateralize Agency RMBS issued and guaranteed by the GSEs ("Single Family GSE CRT") or within pools of mortgage loans secured by multifamily properties that collateralize Agency CMBS issued and guaranteed by the GSEs ("Multifamily GSE CRT"). The majority of our GSE CRT holdings are concentrated in 2013 and 2014 vintages, where reference loans have significant embedded home price appreciation. FromGSE CRTs have the added benefit of paying a fundamental perspective, we continuefloating rate coupon that reduces our need to viewhedge interest rate risk. We hold approximately $94.7 million of GSE CRTCRTs as an attractive asset class based on the strength of the U.S. housing market and the strong performanceMay 31, 2020.
We had funded $25.4 million of reference mortgage loans to date.
During the third quarter of 2018, we acquired a participation interest in a secured loan collateralized by mortgage servicing rights associated with Fannie Mae, Freddie Mac, and Ginnie Mae loans. The loan has a two year term subject to a one year extension at the borrower's option. We funded $53.8 million of the loanloans as of March 31, 2019 and have committed to fund up to an additional $21.2 million.2020. We sold our loan participation interest on April 1, 2020.
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As of March 31, 2019, our2020, we held an investment in one commercial real estate loan portfolio consists of one mezzanine loan that we originated with a weighted average maturity of approximately two yearsmatures in 2021 and has a loan-to-value ratio of approximately 74.2%68.3%. One commercial loan was repaid duringWe continue to hold this investment as of the three months endedfiling date of this Quarterly Report.
As of March 31, 2019. The commercial real estate loan had a weighted average yield of 11.08% during the three months ended March 31, 2019 and continued to benefit from favorable fundamentals.
We have also invested2020, we held investments in two jointunconsolidated ventures that are managed by an affiliate of our Manager. The unconsolidated ventures invest in our target assets. We continue to hold these investments as of the filing date of this Quarterly Report.
Portfolio Characteristics
The table below illustrates the vintage distribution of our non-Agency RMBS, GSE CRT and non-Agency CMBS portfolio as of March 31, 20192020 as a percentage of the fair value:

2003-2007 2008-2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total2003-20072008-20102011201220132014201520162017201820192020Total
Prime18.1% 0.6% —%
 —%
 12.5% 10.0% 2.4% 0.3% —%
 15.1% 6.2% 65.2%Prime13.3 %0.1 %— %— %17.6 %6.8 %— %0.5 %— %23.3 %11.0 %— %72.6 %
Alt-A26.2% —%
 —%
 —%
 —%
 —%
 —%
 —%
 —%
 —%
 —%
 26.2%Alt-A15.4 %— %— %— %— %— %— %— %— %— %— %— %15.4 %
Re-REMIC (1)
0.6% 4.2% 1.7% 1.4% 0.6% —%
 —%
 —%
 —%
 —%
 —%
 8.5%
Re-REMIC (1)
0.9 %5.9 %2.5 %1.8 %0.8 %— %— %— %— %— %— %— %11.9 %
Subprime/RPL0.1% —%
 —%
 —%
 —%
 —%
 —%
 —%
 —%
 —%
 —%
 0.1%Subprime/RPL0.1 %— %— %— %— %— %— %— %— %— %— %— %0.1 %
Total Non-Agency45.0% 4.8% 1.7% 1.4% 13.1% 10.0% 2.4% 0.3% —% 15.1% 6.2% 100.0%
Total Non-Agency RMBSTotal Non-Agency RMBS29.7 %6.0 %2.5 %1.8 %18.4 %6.8 %— %0.5 %— %23.3 %11.0 %— %100.0 %
GSE CRT—%
 —%
 —%
 —%
 27.4% 31.8% 5.7% 20.3% 3.3% 6.2% 5.3% 100.0%GSE CRT— %— %— %— %15.2 %24.7 %4.8 %21.9 %3.1 %4.5 %14.9 %10.9 %100.0 %
Non-Agency CMBS—%
 2.5% 16.4% 10.9% 12.0% 31.9% 7.8% 3.2% 8.2% 4.8% 2.3% 100.0%Non-Agency CMBS— %2.0 %14.1 %11.9 %10.7 %32.0 %7.1 %5.3 %7.5 %5.1 %3.6 %0.7 %100.0 %
(1)
(1)Reflects the year in which the re-securitizations were issued. The vintage distribution of the securities that collateralize our Re-REMIC investments is 4.5% for 2005, 1.8% for 2006, and 93.7% for 2007.

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The following table summarizes the credit enhancement provided to our Re-REMIC holdings as of March 31, 2019investments is 0.4% for 2006, and December 31, 2018.99.6% for 2007.
  
Percentage of Re-REMIC 
Holdings at Fair Value
Re-REMIC Subordination(1)
March 31, 2019 December 31, 2018
0% - 10%52.3% 49.8%
10% - 20%3.4% 3.4%
20% - 30%17.3% 16.9%
30% - 40%12.9% 14.9%
40% - 50%1.3% 1.8%
50% - 60%12.4% 12.5%
60% - 70%0.4% 0.7%
Total100.0% 100.0%
(1)Subordination refers to the credit enhancement provided to the Re-REMIC tranche held by us by any junior Re-REMIC tranche or tranches in a resecuritization. This figure reflects the percentage of the balance of the underlying securities represented by any junior tranche or tranches at the time of resecuritization. Generally, principal losses on the underlying securities in excess of the subordination amount would result in principal losses on the Re-REMIC tranche held by us. As of March 31, 2019, 71.5% of our Re-REMIC holdings are not senior tranches.

The tables below represent the geographic concentration of the underlying collateral for our non-Agency RMBS, GSE CRT and non-Agency CMBS portfolio as of March 31, 2019:2020.The geographic markets that we invest in have been and continue to be severely impacted by the ongoing COVID-19 pandemic.

Non-Agency RMBS
State
 Percentage 
GSE CRT
State
 Percentage 
Non-Agency CMBS
State
 PercentageNon-Agency RMBS
State		PercentageGSE CRT
State		PercentageNon-Agency CMBS
State		Percentage
California 46.0% California 18.4% California 15.2%California44.2 %California16.5 %New York15.3 %
New York 8.5% Texas 6.2% New York 14.7%New York8.7 %Texas7.0 %California14.5 %
Florida 6.0% Florida 4.6% Texas 9.0%Florida6.5 %Florida5.5 %Texas8.7 %
New Jersey 3.8% New York 4.4% Florida 6.5%New Jersey3.3 %New York4.5 %Florida6.1 %
ColoradoColorado3.1 %Illinois3.8 %Illinois4.8 %
WashingtonWashington3.1 %Virginia3.7 %New Jersey3.9 %
VirginaVirgina3.0 %Washington3.5 %Pennsylvania3.4 %
Massachusetts 3.3% Virginia 4.2% Illinois 4.1%Massachusetts2.7 %New Jersey3.2 %Virginia3.2 %
Virginia 2.9% Illinois 3.9% Pennsylvania 3.7%
Washington 2.8% Washington 3.4% Ohio 3.1%
TexasTexas2.7 %Colorado3.2 %Michigan3.1 %
Maryland 2.6% Massachusetts 3.3% Virginia 3.1%Maryland2.5 %Pennsylvania3.1 %Ohio3.1 %
Colorado 2.6% New Jersey 3.3% Georgia 3.0%
Illinois 2.4% Pennsylvania 3.1% New Jersey 3.0%
Other 19.1% Other 45.2% Other 34.6%Other20.2 %Other46.0 %Other33.9 %
Total 100.0% Total 100.0% Total 100.0%Total100.0 %Total100.0 %Total100.0 %
Financing and Other Liabilities
We enter intohave historically used repurchase agreements to finance the majority of our target assets. Theseassets and expect to use repurchase agreements to finance Agency investments in the future. Repurchase agreements are generally settled on a short-term basis, usually from one to six months, and bear interest at rates that have historically moved in close relationship to LIBOR. As of March 31, 2020, we had entered into repurchase agreements totaling $6.3 billion (December 31, 2019: $17.5 billion) that were secured by our mortgage-backed and credit risk transfer securities and an investment in a loan participation interest. Repurchase agreements are generally settled on a short-term basis, usually from one to twelve months, and bear interest at rates that have historically moved in close relationship to LIBOR. At each settlement date, we refinance each repurchase agreement at the market interest rate at that time. As We repaid all of March 31, 2019, we had entered intoour repurchase agreements totaling $16.8 billion (December 31, 2018: $13.6 billion).as of May 7, 2020 with proceeds from asset sales and the return of cash margin previously pledged on our repurchase agreements.
Our wholly-owned captive insurance subsidiary, IAS Services LLC, is a member of the Federal Home Loan Bank of Indianapolis ("FHLBI"). As a member of the FHLBI, IAS Services and has borrowed funds from the FHLBI in the form of secured loans. As of March 31, 2019,2020, IAS Services LLC had $1.65$1.35 billion in outstanding secured loans. Forloans that are due by December 2020. As of May 31, 2020, we reduced the three months ended March 31, 2019, IAS Services had weighted average borrowingsbalance of $1.65 billion with a weighted average borrowing rate of 2.70% and a weighted average maturity of 5.1 years.

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our secured loans to $837.5 million. We intend to repay the remaining balance of our secured loans with proceeds from sales of assets collateralizing the secured loans. As discussed in Note 5 - "Other Assets," IAS Services LLC is required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of secured loans from the FHLBI. FHLBI redeemed a portion of our stock in connection with the repayment of our secured loans discussed above. The balance of our FHLBI stock is $37.7 million as of the filing date of this Quarterly Report.
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:
$ in thousandsCollateralized borrowings under repurchase agreements and secured loans
Quarter EndedQuarter-end balanceAverage quarterly balanceMaximum balance
March 31, 201918,474,387  17,229,809  18,474,387  
June 30, 201918,725,065  19,019,503  19,365,413  
September 30, 201919,722,032  19,535,263  19,898,863  
December 31, 201919,182,303  19,842,868  20,377,801  
March 31, 20207,637,746  16,673,939  23,132,234  
$ in thousandsCollateralized borrowings under repurchase agreements and secured loans
Quarter EndedQuarter-end balance Average quarterly balance Maximum balance of any quarter-end
March 31, 201815,561,137
 15,536,093
 15,561,137
June 30, 201815,352,321
 15,275,972
 15,352,321
September 30, 201816,028,518
 15,973,428
 16,078,388
December 31, 201815,252,484
 15,836,597
 16,144,062
March 31, 201918,474,387
 17,229,809
 18,474,387
In 2013, our wholly-owned subsidiary, IAS Operating Partnership LP, issued $400.0 million in aggregate principal amount of Exchangeable Senior Notes (the "Notes"). We retired a portion of the Notes prior to their maturity and fully retired the Notes upon their maturity on March 15, 2018. We utilized proceeds from repurchase agreement borrowings to retire the Notes.
We have invested in and partially funded our portion of a commitment in a loan participation. The remainder of our commitment under the agreement will be funded over the two year term of the loan based upon the financing needs of the borrower. As of March 31, 2019, we have unfunded commitments of $21.2 million.
We have also committed to invest up to $122.5$125.1 million in unconsolidated ventures that are sponsored by an affiliate of our Manager. As of March 31, 2019, $114.92020, $118.7 million of our commitment to these unconsolidated ventures has been called. We are committed to fund $7.6$6.4 million in additional capital to fund future investments and cover future expenses should they occur.
Hedging Instruments.Instruments
As of March 31, 2019, we have enteredWe 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 pay fixed interest rates and receive floating interest rates indexed off of one- or three-month LIBOR, effectively fixingLIBOR.
We actively manage our swap portfolio by terminating and entering into new swaps as the floating interest rates on $12.9 billion (December 31, 2018: $12.4 billion) of borrowings. As of March 31, 2019, we received interest based on one-month LIBOR on $8.4 billionsize and composition of our swaps and interest based on three-month LIBOR on $4.5 billion of our swaps.
investment portfolio changes. During the three months ended March 31, 2019,2020, we terminated existing swaps with a notional amount of $4.1$107.7 billion and entered into new swaps with a notional amount of $4.6$93.7 billion to hedge repurchase agreement debt associated with purchases of Agency RMBS andand Agency CMBS securities during the quarter. Daily variation margin payment forsecurities. We terminated all of our remaining interest rate swaps is characterizedin March 2020 as settlement ofwe positioned our portfolio in response to unprecedented market conditions associated with the derivative itself rather than collateralCOVID-19 pandemic. Our exposure to interest rate risk decreased as we sold Agency assets and is recorded as a realized gain or loss in our condensed consolidated statement of operations.repaid borrowings. We realized a net loss of $165.9$904.7 million on interest rate swaps during the three months ended March 31, 20192020 primarily due to falling interest rates in the first quarter of 2019.
As of March 31, 2019 we held $1.6 billion (December 31, 2018: $1.7 billion) in notional amount of futures contracts. During the three months ended March 31, 2019, we settled futures contracts with a notional amount of $1.7 billion and realized a net loss of $66.7 million due to falling interest rates in the first quarter of 2019. Daily variation margin payment for futures 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.2020.
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. During the three months ended March 31, 2019, we settled currency forward contracts of $23.1 million (March 31, 2018: $76.9 million) in notional amount and realized a net gain of $185,000 (March 31, 2018: $3.4 million net loss). As of March 31, 2019,2020, we had $25.5€20.8 million or $22.7 million (December 31, 2018:2019: €20.8 million or $23.1 million) of notional amount of forward contracts denominated in Euro related to our investment in an unconsolidated venture. During the three months ended March 31, 2020, we settled currency forward contracts of €20.8 million or $23.1 million (March 31, 2019: €20.3 million or $23.1 million) in notional amount and realized a net gain of $484,000 (March 31, 2019: $185,000 net gain).
Capital Activities

On February 6, 2020, we completed a public offering of 20,700,000 shares of common stock at the price of $16.78 per share. Total net proceeds were approximately $347.0 million after deducting estimated offering costs.

We may sell up to 17,000,000 shares of our common stock and 7,000,000 shares of our preferred stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreements. We did not sell any shares under these agreements during the quarter ended March 31, 2020.
On February 18, 2020, we declared the following dividends:
•a dividend of $0.4844 per share of Series B Preferred Stock. On March 24, 2020 we announced that we would delay the payment of this dividend to preserve liquidity. On May 9, 2020 we announced that we would pay this dividend on May 22, 2020 to stockholders of record as of the close of business on March 5, 2020; and
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•a dividend of $0.46875 per share of Series C Preferred Stock. On March 24, 2020 we announced that we would delay the payment of this dividend to preserve liquidity. On May 9, 2020 we announced that we would pay this dividend on May 22, 2020 to stockholders of record as of the close of business on March 5, 2020.
On March 17, 2020, we declared the following dividends:
•a dividend of $0.50 per share of common stock. On March 24, 2020 we announced that we would delay the payment of this dividend to preserve liquidity. On May 9, 2020 we announced that we would pay this dividend on June 30, 2020 in a combination of cash and common shares to stockholders of record as of the close of business on May 21, 2020; and
•a dividend of $0.4844 per share of Series A Preferred Stock paid. On March 24, 2020 we announced that we would delay the payment of this dividend to preserve liquidity. On May 9, 2020, we announced that we would pay this dividend on May 22, 2020 to stockholders of record as of the close of business on April 1, 2020.
On May 9, 2020, we declared the following dividends:
•a dividend of $0.4844 per share of Series B Preferred Stock to be paid on June 29, 2020 to stockholders of record as of the close of business on June 5, 2020; and
•a dividend of $0.46875 per share of Series C Preferred Stock to be paid on June 29, 2020 to stockholders of record as of the close of business on June 5, 2020.
On June 17, 2020, we declared the following dividends:
•a dividend of $0.02 per share of common stock to be paid on July 28, 2020 to stockholders of record as of the close of business on July 6, 2020; and
•a dividend of $0.4844 per share of Series A Preferred Stock to be paid on July 27, 2020 to stockholders of record as of the close of business on July 1, 2020.
During the three months ended March 31, 2020, we did not repurchase any shares of our common stock.
Book Value per Common Share
We calculate book value per common share as follows:
As of

As of
In thousands except per share amountsMarch 31, 2019 December 31, 2018
$ in thousands except per share amounts$ in thousands except per share amountsMarch 31, 2020December 31, 2019
Numerator (adjusted equity):   Numerator (adjusted equity):
Total equity2,671,714
 2,286,697
Total equity1,410,381  2,931,899  
Less: Liquidation preference of Series A Preferred Stock(140,000) (140,000)Less: Liquidation preference of Series A Preferred Stock(140,000) (140,000) 
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(287,500) (287,500)Less: Liquidation preference of Series C Preferred Stock(287,500) (287,500) 
Total adjusted equity2,089,214
 1,704,197
Total adjusted equity827,881  2,349,399  
   
Denominator (number of shares):   Denominator (number of shares):
Common stock outstanding128,267
 111,585
Common stock outstanding164,966  144,256  
   
Book value per common share16.29
 15.27
Book value per common share5.02  16.29  
Our book value per common share increased 6.7%decreased 69.2% as of March 31, 20192020 compared to December 31, 20182019 primarily due to significant interest rate spread tighteningwidening in both Agency and non-Agency assets. In particular, premiums over generic collateral on our Agency MBS specified pools decreased 2 to 4 points, as rapid deleveraging in the sector, given its relative liquidity, impacted valuations. In addition, prices of our credit assets. Referholdings were severely impacted by the lack of liquidity and uncertainty surrounding the economic impact of the COVID-19 pandemic. Lastly, forced selling in order to fund margin calls was a significant detriment to book value as sales were executed at distressed levels. ”Refer to Item 3. "Quantitative and Qualitative Disclosures About Market Risk" for interest rate risk and its impact on fair value.

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Critical Accounting Policies
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. All of these estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of these financial statements. If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in valuation of our investment portfolio, future impairments of our MBS and GSE CRTs, change in our interest income recognition, allowance for loan losses, and a change in our tax liability among other effects.
There have been no significant changes to our critical accounting policies that are disclosed in our most recent Form 10-K for the year ended December 31, 2018.2019 except as discussed in Note 2 - "Summary of Significant Accounting Polices" to our condensed consolidated financial statements included in Part I, Item 1 of this report on Form 10-Q.
Recent Accounting Standards
See Part I, Item 1, Financial Statements Note 2 - "Accounting Pronouncements Recently Adopted" and "Pending Accounting Pronouncements".



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Results of Operations
The table below presents certain information from our condensed consolidated statements of operations for the three months ended March 31, 20192020 and 2018.2019.
Three Months Ended March 31,
$ in thousands, except share data20202019
Interest Income
Mortgage-backed and credit risk transfer securities185,536  185,492  
Commercial and other loans1,163  1,582  
Total interest income186,699  187,074  
Interest Expense
Repurchase agreements79,042  101,875  
Secured loans6,646  11,144  
Total interest expense85,688  113,019  
Net interest income101,011  74,055  
Other Income (loss)
Gain (loss) on investments, net(755,483) 268,382  
Equity in earnings (losses) of unconsolidated ventures170  692  
Gain (loss) on derivative instruments, net(910,779) (201,460) 
Realized and unrealized credit derivative income (loss), net(33,052) 7,884  
Net loss on extinguishment of debt(4,806) —  
Other investment income (loss), net803  1,029  
Total other income (loss)(1,703,147) 76,527  
Expenses
Management fee – related party10,953  9,534  
General and administrative3,103  2,258  
Total expenses14,056  11,792  
Net income (loss)(1,616,192) 138,790  
Dividends to preferred stockholders11,107  11,107  
Net income (loss) attributable to common stockholders(1,627,299) 127,683  
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic(10.38) 1.05  
Diluted(10.38) 1.05  
Weighted average number of shares of common stock:
Basic156,771,279  121,097,686  
Diluted156,771,279  121,109,259  
 Three Months Ended March 31,
$ in thousands, except share data2019 2018
Interest Income   
Mortgage-backed and credit risk transfer securities185,492
 149,003
Commercial and other loans1,582
 4,222
Total interest income187,074
 153,225
Interest Expense   
Repurchase agreements101,875
 59,585
Secured loans11,144
 6,927
Exchangeable senior notes—
 1,621
Total interest expense113,019
 68,133
Net interest income74,055
 85,092
Other Income (loss)   
Gain (loss) on investments, net268,382
 (160,370)
Equity in earnings (losses) of unconsolidated ventures692
 896
Gain (loss) on derivative instruments, net(201,460) 133,367
Realized and unrealized credit derivative income (loss), net7,884
 3,165
Net loss on extinguishment of debt—
 (26)
Other investment income (loss), net1,029
 3,102
Total other income (loss)76,527
 (19,866)
Expenses   
Management fee – related party9,534
 10,221
General and administrative2,258
 1,756
Total expenses11,792
 11,977
Net income138,790
 53,249
Net income attributable to non-controlling interest—
 671
Net income attributable to Invesco Mortgage Capital Inc.138,790
 52,578
Dividends to preferred stockholders11,107
 11,107
Net income attributable to common stockholders127,683
 41,471
Earnings per share:   
Net income (loss) attributable to common stockholders   
Basic1.05
 0.37
Diluted1.05
 0.37
Weighted average number of shares of common stock:   
Basic121,097,686
 111,629,105
Diluted121,109,259
 117,876,995


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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 months ended March 31, 20192020 and 2018.2019.
Three Months Ended March 31,
$ in thousands20202019
Average Earning Assets (1):
Agency RMBS:
15 year fixed-rate, at amortized cost232,551  371,228  
30 year fixed-rate, at amortized cost8,422,795  11,780,005  
Hybrid ARM, at amortized cost35,768  243,813  
Agency - CMO, at amortized cost365,936  291,914  
Agency CMBS, at amortized cost3,543,594  1,129,227  
Non-Agency CMBS, at amortized cost3,552,164  3,361,132  
Non-Agency RMBS, at amortized cost751,090  1,084,721  
GSE CRT, at amortized cost876,341  808,296  
Loan participation interest33,545  54,763  
Commercial loans, at amortized cost23,965  27,375  
Average earning assets17,837,749  19,152,474  
Average Earning Asset Yields (2):
Agency RMBS:
15 year fixed-rate3.74 %3.50 %
30 year fixed-rate3.75 %3.38 %
Hybrid ARM4.35 %3.48 %
Agency - CMO3.74 %3.56 %
Agency CMBS3.65 %3.52 %
Non-Agency CMBS5.32 %4.98 %
Non-Agency RMBS7.17 %6.71 %
GSE CRT (3)
3.11 %3.67 %
Loan participation interest5.95 %6.14 %
Commercial loans10.31 %11.08 %
Average earning asset yields4.19 %3.91 %
 Three Months Ended March 31,
$ in thousands2019 2018
Average Balances (1):
   
Agency RMBS:   
15 year fixed-rate, at amortized cost371,228
 2,879,696
30 year fixed-rate, at amortized cost11,780,005
 7,830,802
ARM, at amortized cost19,355
 231,303
Hybrid ARM, at amortized cost224,458
 1,666,890
Agency - CMO, at amortized cost291,914
 273,884
Agency CMBS, at amortized cost1,129,227
 —
Non-Agency CMBS, at amortized cost3,361,132
 3,193,575
Non-Agency RMBS, at amortized cost1,084,721
 1,084,584
GSE CRT, at amortized cost808,296
 776,742
Loan participation interest54,763
 —
Commercial loans, at amortized cost27,375
 193,540
Average earning assets19,152,474
 18,131,016
Average Earning Asset Yields (2):
   
Agency RMBS:   
15 year fixed-rate3.50% 2.04%
30 year fixed-rate3.38% 2.96%
ARM3.70% 2.32%
Hybrid ARM3.47% 2.24%
Agency - CMO3.56% 2.51%
Agency CMBS3.52% —%
Non-Agency CMBS4.98% 4.85%
Non-Agency RMBS6.71% 7.08%
GSE CRT (3)
3.67% 3.00%
Loan participation interest6.14% —%
Commercial loans11.08% 8.85%
Average earning asset yields3.91% 3.38%
(1)Average balances for each period are based on weighted month-end average earning assets.
(1)Average balances for each period are based on weighted month-end average earning assets.
(2)Average earning asset yields for the period were calculated by dividing interest income, including amortization of premiums and discounts, by the average month-end earning assets based on the amortized cost of the investments. All yields are annualized.
(3)GSE CRT average earning asset yields exclude coupon interest associated with embedded derivatives on securities not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net under U.S. GAAP.
(2)Average earning asset yields for the period were calculated by dividing interest income, including amortization of premiums and discounts, by the average month-end earning assets based on the amortized cost of the investments. All yields are annualized.
(3)GSE CRT average earning asset yields exclude coupon interest associated with embedded derivatives on securities not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net under U.S. GAAP.
Our primary source of income is interest earned on our investment portfolio. We had average earning assets of approximately $19.2$17.8 billion for the three months ended March 31, 20192020 (March 31, 2018: $18.12019: $19.2 billion). Average earning assets increaseddecreased for the three months ended March 31, 20192020 primarily due to the sale of MBS and GSE CRTs for cash proceeds of $16.2 billion as previously discussed in the Executive Summary section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our average earning assets for the three months ended March 31, 2020 are not indicative of our future ability to generate interest income because the sales referred to above primarily occurred during the latter part of March 2020, and we invested $258.6 million in netsold additional MBS and GSE CRTs with a fair value of $6.2 billion as of March 31, 2020 for cash proceeds from common stock issuancesof $5.9 billion between April 1, 2020 and $168.1 million in proceeds from commercial loan repayments in 2018 and the first quarter of 2019 into newly issued 30 year fixed-rate Agency RMBS and Agency CMBS securities.

May 31, 2020.
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We earned total interest income of $187.1$186.7 million (March 31, 2018: $153.22019: $187.1 million) for the three months ended March 31, 2019.2020. Our interest income includes coupon interest and net premium amortization on MBS and GSE CRTs as well as interest income on commercial and other loans as shown in the table below.
Three Months Ended March 31, Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Interest Income   Interest Income
MBS and GSE CRT - coupon interest192,442
 166,319
MBS and GSE CRT - coupon interest202,109  192,442  
MBS and GSE CRT - net premium amortization(6,950) (17,316)MBS and GSE CRT - net premium amortization(16,573) (6,950) 
MBS and GSE CRT - interest income185,492
 149,003
MBS and GSE CRT - interest income185,536  185,492  
Commercial and other loans1,582
 4,222
Commercial and other loans1,163  1,582  
Total interest income187,074
 153,225
Total interest income186,699  187,074  
MBS and GSE CRT interest income increased $36.5 million$44,000 for the three months ended March 31, 20192020 compared to 20182019 primarily due to highera $9.7 million increase in coupon interest reflecting a 28 basis point increase in average earning asset yields. Average earnings assets and lower net premium amortization. Net premium amortization decreased $10.4 million for the three months ended March 31, 2019 compared to 2018 primarilyasset yields rose due to slower prepayment speeds onpurchases of 30 year fixed-rate Agency RMBS and purchases of non-Agency CMBS securities at higher yields. Higher coupon interest was offset by a discount$9.6 million increase in net premium amortization due to faster prepayment speeds driven by cuts in the federal funds interest rate over the lastpast twelve months.
Interest income on our commercial and other loans decreased $2.6 million$419,000 during the three months ended March 31, 20192020 primarily due to commercial loan repayments over the past twelve months. The balance of ourprincipal payments on commercial loans held-for-investment decreased to $24.5totaling $7.1 million as of March 31, 2019 compared to $184.3 million as of March 31, 2018.
Our average earning asset yields increased 53 basis points during the three months ended March 31, 2019 compared to 2018 due to purchases of new securities at higher yields, slower prepayment speeds and higher index rates on floating and adjustable assets.in 2019.
Prepayment Speeds
Our RMBS and 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 on our RMBS and GSE CRT portfolio 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. The standard measure of prepayment speeds is the constant prepayment rate, also known as the conditional prepayment rate or "CPR". CPR measures prepayments as a percentage of the current outstanding loan balance and is expressed as a compound annual rate. The table below provides the three month constant prepayment rate for our RMBS and GSE CRTs as of March 31, 2019,2020, December 31, 2018, September 30, 20182019, and June 30, 2018.March 31, 2019.
As ofAs of
March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2020December 31, 2019March 31, 2019
15 year fixed-rate Agency RMBS7.1
 8.8
 10.9
 10.6
15 year fixed-rate Agency RMBS16.0  12.5  7.1  
30 year fixed-rate Agency RMBS4.9
 6.2
 7.4
 8.2
30 year fixed-rate Agency RMBS11.9  18.1  4.9  
ARM/ Hybrid ARM Agency RMBS15.7
 13.8
 16.6
 15.7
Hybrid ARM Agency RMBSHybrid ARM Agency RMBS1.6  28.7  15.7  
Non-Agency RMBS8.3
 9.1
 10.5
 12.0
Non-Agency RMBS18.4  17.2  8.3  
GSE CRT6.6
 8.7
 10.9
 9.8
GSE CRT15.6  20.1  6.6  
Weighted average CPR5.7
 7.3
 8.9
 10.2
Weighted average CPR14.2  18.1  5.7  
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The following table presents net premium amortization recognized on our MBS and GSE CRT portfolio for the three months ended March 31, 20192020 and 2018.2019.
Three Months Ended March 31,Three Months Ended March 31,
$ in thousands, except share data2019 2018$ in thousands, except share data20202019
Agency RMBS and Agency CMBS(12,725) (23,222)
Agency RMBSAgency RMBS(20,913) (12,194) 
Agency CMBSAgency CMBS(1,666) (531) 
Non-Agency CMBS3,031
 1,426
Non-Agency CMBS5,058  3,031  
Non-Agency RMBS3,922
 5,177
Non-Agency RMBS2,698  3,922  
GSE CRT(1,178) (697)GSE CRT(1,750) (1,178) 
Net (premium amortization) discount accretion(6,950) (17,316)Net (premium amortization) discount accretion(16,573) (6,950) 
Net premium amortization decreasedincreased $9.6 million for the three months ended March 31, 2020 compared to the same period in 20182019 primarily due to slowerfaster prepayment speeds on 30 year fixed-rate Agency RMBS in the three months ended March 31, 2019 andRMBS. Higher premium amortization was partially offset by discount accretion on purchases of non-Agency CMBS securities at a discount over the last 12twelve months.
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 the Cost of Funds
The table below presents the components of interest expense for the three months ended March 31, 20192020 and 2018:2019:
Three Months Ended March 31,Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Interest Expense   Interest Expense
Interest expense on repurchase agreement borrowings107,726
 66,124
Interest expense on repurchase agreement borrowings89,109  107,726  
Amortization of net deferred (gain) loss on de-designated interest rate swaps(5,851) (6,539)Amortization of net deferred (gain) loss on de-designated interest rate swaps(10,067) (5,851) 
Repurchase agreements interest expense101,875
 59,585
Repurchase agreements interest expense79,042  101,875  
Secured loans11,144
 6,927
Secured loans6,646  11,144  
Exchangeable senior notes—
 1,621
Total interest expense113,019
 68,133
Total interest expense85,688  113,019  
We enterhave historically entered into repurchase agreements to finance the majority of our target assets. These agreements are secured by our mortgage-backed and credit risk transfer securities. These agreements are generally settled on a short-term basis, usually from one to twelvesix months, and bear interest at rates that have historically moved in close relationship to LIBOR. At each settlement date, we typically refinance each repurchase agreement at the market interest rate at that time.
Our interest expense on repurchase agreement borrowings rose $41.6decreased $18.6 million for the three months ended March 31, 20192020 compared to 20182019 due to higherlower average borrowings and increasesa lower average cost of funds reflecting decreases in the federal funds rate over the past twelve months. We increased our averageinterest rate. Average borrowings in the first quarterdecreased primarily due to repayment of 2019 after investing $258.6 million in net$11.2 billion of repurchase agreements with proceeds from common stock issuancesasset sales due to financial market disruption caused by the COVID-19 pandemic as previously discussed in this Management's Discussion and $168.1Analysis of Financial Condition and Results of Operations. Average borrowings also decreased due to repayment of $300.0 million of secured loans in proceeds from commercial loan repayments in 2018 and the first quarter of 2019 into newly issued 30 year fixed-rate Agency RMBS and Agency CMBS securities.February 2020 due to a scheduled maturity.
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 $10.1 million during the three months ended March 31, 2020 and $5.9 million during the three months ended March 31, 2019 and $6.5 million during the three months ended March 31, 2018.2019. 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 months ended March 31, 2020 by $4.2 million because it is probable that the original forecasted repurchase agreement transactions will not occur by the end of the originally specified time period. During the next twelve months, we estimate that $23.8$19.1 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.
During the three months ended March 31, 2019,2020, interest expense for our secured loans increased $4.2decreased $4.5 million compared to the same period in 20182019 due to higherlower borrowing rates. rates and repayment of $300.0 million of secured loans in February 2020.
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Borrowing rates on our secured loans are based on the three-month FHLB swap rate plus a spread. For the three months ended March 31, 2019,2020, the weighted average borrowing rate on our secured loans was 2.70%1.83% as compared to 1.68%2.70% for the three months ended March 31, 2018.

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During the three months ended March 31, 2019, interest expense on exchangeable senior notes decreased $1.6 million compared to the same period in 2018 because the Notes were retired on March 15, 2018.2019.
Our total interest expense during the three months ended March 31, 2019 increased $44.92020 decreased $27.3 million from the same period in 20182019 primarily due to the $45.8$23.1 million increasedecrease in interest expense on repurchase agreements borrowings and secured loans in the 20192020 period offset by a $1.6 million decrease in interest expense on the Notes as discussed above.
The table below presents information related to our borrowings and cost of funds for the three months ended March 31, 20192020 and 2018:2019:
Three Months Ended March 31,
$ in thousands20202019
Average Borrowings(1):
Agency RMBS (2)
8,521,865  11,664,156  
Agency CMBS
3,523,998  1,074,917  
Non-Agency CMBS (2)
3,049,547  2,663,941  
Non-Agency RMBS689,249  886,554  
GSE CRT722,179  717,482  
Loan participation interest25,159  41,072  
Total average borrowings16,531,997  17,048,122  
Maximum borrowings during the period (3)
23,132,234  18,474,387  
Average Cost of Funds (4):
Agency RMBS (2)
2.30 %2.59 %
Agency CMBS2.17 %2.64 %
Non-Agency CMBS (2)
2.34 %3.24 %
Non-Agency RMBS2.67 %3.54 %
GSE CRT2.54 %3.49 %
Loan participation interest3.52 %4.15 %
Cost of funds2.07 %2.65 %
Effective cost of funds (non-GAAP measure) (5)
2.02 %2.68 %
 Three Months Ended March 31,
$ in thousands2019 2018
Average Borrowings(1):
   
Agency RMBS (2)
11,664,156
 11,427,614
Agency CMBS 
1,074,917
 —
Non-Agency CMBS (2)
2,663,941
 2,542,722
Non-Agency RMBS886,554
 891,202
GSE CRT717,482
 674,555
Exchangeable senior notes—
 116,176
Loan participation interest41,072
 —
Total average borrowings17,048,122
 15,652,269
Maximum borrowings during the period (3)
18,474,387
 15,674,202
Average Cost of Funds (4):
   
Agency RMBS (2)
2.59% 1.65%
Agency CMBS2.64% —%
Non-Agency CMBS (2)
3.24% 2.28%
Non-Agency RMBS3.54% 2.91%
GSE CRT3.49% 2.87%
Exchangeable senior notes—% 5.58%
Loan participation interest4.15% —%
Cost of funds2.65% 1.74%
Effective cost of funds (non-GAAP measure) (5)
2.68% 2.22%
(1)Average borrowings for each period are based on weighted month-end balances.
(1)Average borrowings for each period are based on weighted month-end balances.
(2)Agency RMBS and non-Agency CMBS average borrowings and average cost of funds include borrowings under repurchase agreements and secured loans.
(3)Amount represents the maximum borrowings at month-end during each of the respective periods.
(4)Average cost of funds is calculated by dividing annualized interest expense excluding amortization of net deferred gain (loss) on de-designated interest rate swaps by our average borrowings.
(5)For a reconciliation of cost of funds to effective cost of funds, see "Non-GAAP Financial Measures."
(2)Agency RMBS and non-Agency CMBS average borrowings and average cost of funds include borrowings under repurchase agreements and secured loans.
(3)Amount represents the maximum borrowings at month-end during each of the respective periods.
(4)Average cost of funds is calculated by dividing annualized interest expense excluding amortization of net deferred gain (loss) on de-designated interest rate swaps by our average borrowings.
(5)For a reconciliation of cost of funds to effective cost of funds, see "Non-GAAP Financial Measures."
Total average borrowings rose $1.4 billiondecreased $516.1 million in the three months ended March 31, 20192020 compared to 20182019 primarily because we entered intorepaid $11.2 billion of repurchase agreements to finance our increased holdingsand $300.0 million of 30 year fixed-rate Agency RMBS, Agency CMBS and non-Agency CMBS. The increasesecured loans in ourthe three months ended March 31, 2020 as discussed above. Our average cost of funds decreased 58 basis points for three months ended March 31, 20192020 versus 2018 was2019 primarily due to increasesdecreases in the federal funds rate over the past twelve months.

Our average borrowings for the three months ended March 31, 2020 are not indicative of our future interest expense because we repaid the $11.2 billion of repurchase agreements referred to above during the latter part of March 2020. In addition, we repaid the balance of our repurchase agreements on May 7, 2020 and an additional $512.5 million of secured loans as of April 30, 2020.
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Net Interest Income
The table below presents the components of net interest income for the three months ended March 31, 20192020 and 2018:2019:
Three Months Ended March 31,Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
Interest Income   Interest Income
Mortgage-backed and credit risk transfer securities185,492
 149,003
Mortgage-backed and credit risk transfer securities185,536  185,492  
Commercial and other loans1,582
 4,222
Commercial and other loans1,163  1,582  
Total interest income187,074
 153,225
Total interest income186,699  187,074  
Interest Expense   Interest Expense
Interest expense on repurchase agreement borrowings107,726
 66,124
Interest expense on repurchase agreement borrowings89,109  107,726  
Amortization of net deferred (gain) loss on de-designated interest rate swaps(5,851) (6,539)Amortization of net deferred (gain) loss on de-designated interest rate swaps(10,067) (5,851) 
Repurchase agreements interest expense101,875
 59,585
Repurchase agreements interest expense79,042  101,875  
Secured loans11,144
 6,927
Secured loans6,646  11,144  
Exchangeable senior notes—
 1,621
Total interest expense113,019
 68,133
Total interest expense85,688  113,019  
Net interest income74,055
 85,092
Net interest income101,011  74,055  
Net interest rate margin1.26% 1.64%Net interest rate margin2.12 %1.26 %
Our net interest income, which equals interest income less interest expense, totaled $74.1$101.0 million (March 31, 2018: $85.12019: $74.1 million) for the three months ended March 31, 2019.2020. The decreaseincrease in net interest income for the three months ended March 31, 20192020 was primarily due to an increase in interest expensea lower cost of funds driven by higher average borrowings and borrowing rates exceedingcuts in the increase infederal funds interest income on higher average earning assets.rate as discussed above.
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 1.26%2.12% (March 31, 2018: 1.64%2019: 1.26%) for the three months ended March 31, 2019.2020. The decreaseincrease in net interest rate margin for the three months ended March 31, 20192020 compared to the same periodsperiod in 20182019 was primarily due to increasesdecreases in the federal funds rate in 2018throughout 2019 that had a greater impact on our average cost of funds than on our average earning asset yields. Our cost of funds on all of our borrowings is influenced by changes in short term interest rates, whereas approximately 91% of86% of the Company’s investments were fixed rate assets as of March 31, 2019.2020.
Gain (Loss) on Investments, net
The table below summarizes the components of gain (loss) on investments, net for the three months ended March 31, 20192020 and 2018:2019:
Three Months Ended March 31,
$ in thousands20202019
Net realized gains (losses) on sale of investments(4,285) (11,115) 
Impairment of investments the Company intends to sell or more likely than not will be required to sell before recovery of amortized cost basis(78,834) —  
Other-than-temporary impairment losses—  (1,776) 
Net unrealized gains (losses) on MBS accounted for under the fair value option(514,503) 280,039  
Net unrealized gains (losses) on GSE CRT accounted for under the fair value option(152,369) 1,234  
Net unrealized gains (losses) on commercial loan and loan participation interest(5,492) —  
Total gain (loss) on investments, net(755,483) 268,382  
 Three Months Ended March 31,
$ in thousands2019 2018
Net realized gains (losses) on sale of investments(11,115) (9,237)
Other-than-temporary impairment losses(1,776) (4,359)
Net unrealized gains (losses) on MBS accounted for under the fair value option280,039
 (147,195)
Net unrealized gains (losses) on GSE CRT accounted for under the fair value option1,234
 434
Net unrealized gains (losses) on trading securities—
 (13)
Gain (loss) on investments, net268,382
 (160,370)

As partpreviously discussed, we experienced unprecedented market conditions as a result of our investment process, our mortgage-backed and credit risk transfer securities are continuously reviewed to determine if they continue to meet our risk and return targets. This process involves looking at changing market assumptions and the impact those assumptions will have on the individual securities. Duringglobal COVID-19 pandemic during the three months ended March 31, 2019,2020. To generate liquidity and reduce leverage, we continued to actively manage our investment portfoliosold MBS and sold mostGSE CRTs for cash proceeds of our ARM and Hybrid ARM securities. We sold $745.9 million of mortgage-backed securities$16.2 billion (March 31, 2018: $198.52019: $734.8 million) and realized net losses of $11.1$4.3 million (March 31, 2018:2019: net losses of $9.2$11.1 million). 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 on March 23, 2020.

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impairment on non-Agency RMBS and CMBS securities during the three months ended March 31, 2020 because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis. We still held these securities as of March 31, 2020. We assess our investment securities for other-than-temporarycredit losses
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and impairment on a quarterly basis. Our determination of whether a security is other-than-temporarily impaired involves judgment and assumptions based on subjective and objective factors. We consider (i) whether we intend to sell the security and whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost and (ii) the financial condition and near-term prospects of recovery in fair value of the security. This includes a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment. When the fair value of an investment is less than its amortized cost at the balance sheet date of the reporting period for which impairment is assessed, the impairment is designated as either "temporary" or "other-than-temporary." For additional information regarding our assessment analysis of other-than temporaryaccounting policy for credit losses and impairment, on our investment securities, refer to Note 42 – “Mortgage-Backed and Credit Risk Transfer Securities”“Summary of Significant Accounting Policies” of our condensed consolidated financial statements.statements included in Part I. Item 1. of this Quarterly Report.
We have elected the fair value option for all of our RMBS IOs,interest-only securities, our MBS purchased on or after September 1, 2016 and our GSE CRTs purchased on or after August 24, 2015. 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 March 31, 2019, $16.12020, $5.3 billion (December 31, 2018: $11.62019: $17.4 billion) or 76%65% (December 31, 2018: 67%2019: 80%) of our MBS and GSE CRT are accounted for under the fair value option. Our percentage of MBS and GSE CRTs accounted for under the fair value option declined as of March 31, 2020 due to sales of securities accounted for under the fair value option during the three months ended March 31, 2020.
We recorded net unrealized gainslosses on our MBS portfolio accounted for under the fair value option of $514.5 million in the three months ended March 31, 2020 compared to net unrealized gains of $280.0 million in the three months ended March 31, 2019 compared to2019. Net unrealized losses in the three months ended March 31, 2020 reflect lower interest rates and wider interest rate spreads on our Agency and non-Agency assets. We also recorded net unrealized losses on our GSE CRT portfolio accounted for under the fair value option of $147.2$152.4 million in the three months ended March 31, 2018. Net2020 compared to net unrealized gains of $1.2 million in the three months ended March 31, 20192019. Net unrealized losses in the three months ended March 31, 2020 reflect tighterdeclines in valuations due to wider interest rate spreads across the Company's credit assetsspreads.
We recorded an unrealized loss of $3.8 million on our loan participation interest and Agency CMBS, and valuation gainsan unrealized loss of $1.7 million on our commercial loan in the Company's specified pool Agency RMBS. Most ofthree months ended March 31, 2020. We valued our holdings of 30 year fixed-rate Agency RMBS are in specified pools with attractive prepayment characteristics.loan participation interest based on the price that we sold the participation interest for on April 1, 2020. We valued our commercial loan based upon a valuation from an independent pricing service.
Equity in Earnings (Losses) of Unconsolidated Ventures
For the three months ended March 31, 2019,2020, we recorded equity in earnings of unconsolidated ventures of $692,000$170,000 (March 31, 2018:2019: equity in earnings of $896,000)$692,000). We recorded equity in earnings for the three months ended March 31, 20192020 and 20182019 primarily due to realized and unrealized gains on the underlying portfolio investments.
Gain (Loss) on Derivative Instruments, net
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements on our floating rate repurchase agreements and secured loans. To accomplish these objectives, we primarily use interest rate derivative instruments, including interest rate swaps interest rate swaptions,and U.S. Treasury futures contracts and TBAs as part of our interest rate risk management strategy.
We also use currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on our investmentsunconsolidated joint venture investment denominated in foreign currencies.Euros.
The tables below summarize our realized and unrealized gain (loss) on derivative instruments, net for the following periods:
$ in thousandsThree months ended March 31, 2019
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(165,884) 4,509
 12,991
 (148,384)
Futures Contracts(66,688) —
 12,944
 (53,744)
Currency Forward Contracts185
 —
 483
 668
Total(232,387) 4,509
 26,418
 (201,460)
$ in thousandsThree months ended March 31, 2018
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 Swaps122,273
 (12,112) 32,374
 142,535
Futures Contracts(5,277) —
 (1,612) (6,889)
Currency Forward Contracts(3,418) —
 1,139
 (2,279)
Total113,578
 (12,112) 31,901
 133,367

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$ in thousandsThree Months Ended March 31, 2020
Derivative
not designated as
hedging instrument		Realized gain (loss) on derivative instruments, net Contractual net interest income (expense)Unrealized gain (loss), netGain (loss) on derivative instruments, net
Interest Rate Swaps(904,704) 11,924  (18,532) (911,312) 
Currency Forward Contracts484  —  49  533  
Total(904,220) 11,924  (18,483) (910,779) 

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$ in thousandsThree Months Ended March 31, 2019
Derivative
not designated as
hedging instrument		Realized gain (loss) on derivative instruments, net Contractual net interest income (expense)Unrealized gain (loss), netGain (loss) on derivative instruments, net
Interest Rate Swaps(165,884) 4,509  12,991  (148,384) 
Futures Contracts(66,688) —  12,944  (53,744) 
Currency Forward Contracts185  —  483  668  
Total(232,387) 4,509  26,418  (201,460) 

During the three months ended March 31, 2020, we terminated existing swaps with a notional amount of $107.7 billion and entered into new swaps with a notional amount of $93.7 billion to hedge repurchase agreement debt associated with purchases of Agency RMBS and Agency CMBS securities. We did not have any interest rate swap contracts as of March 31, 2020. We terminated all of our remaining interest rate swaps in March 2020 as we positioned 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 three months ended March 31, 2020, respectively, on interest rate swaps primarily due to falling interest rates.
As of MarchDecember 31, 2019, and December 31, 2018, we held the following interest rate swaps whereby we receive interest at a one-month and three-month LIBOR rate:
$ in thousandsAs of December 31, 2019
Derivative instrumentNotional AmountsAverage Fixed Pay RateAverage Receive RateAverage Maturity (Years)
Interest Rate Swaps14,000,000  1.47 %1.79 %5.2
$ in thousandsAs of March 31, 2019 As of December 31, 2018
Derivative instrumentNotional Amounts Average Fixed Pay Rate Average Receive Rate Average Maturity (Years) Notional Amounts Average Fixed Pay Rate Average Receive Rate Average Maturity (Years)
Interest Rate Swaps12,895,000
 2.37% 2.55% 4.4 12,370,000
 2.46% 2.55% 3.7


DuringWe were not a party to any futures contracts in the three months ended March 31, 2019, we terminated existing swaps with a notional amount of $4.1 billion and entered into new swaps with a notional amount of $4.6 billion to hedge repurchase agreement debt associated with purchases of Agency RMBS and Agency CMBS securities during the quarter. 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 loss of $165.9 million on interest rate swaps during the three months ended March 31, 2019 primarily due to falling interest rates in the first quarter of 2019.
As of March 31, 2019 we held $1.6 billion (December 31, 2018: $1.7 billion) in notional amount of futures contracts.2020. During the three months ended March 31, 2019, we settled futures contracts with a notional amount of $1.7 billion andbillion. We realized a net loss of $66.7 million on the settlement of futures contracts for the three months ended March 31, 2019 due to falling interest rates in the first quarter of 2019.rates. Daily variation margin payment for futures 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.


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 months ended March 31, 20192020 and 2018.2019.
Three Months Ended March 31, Three Months Ended March 31,
$ in thousands2019 2018$ in thousands20202019
GSE CRT embedded derivative coupon interest5,350
 5,633
GSE CRT embedded derivative coupon interest4,718  5,350  
Gain (loss) on settlement of GSE CRT embedded derivativesGain (loss) on settlement of GSE CRT embedded derivatives2,283  —  
Change in fair value of GSE CRT embedded derivatives2,534
 (2,468)Change in fair value of GSE CRT embedded derivatives(40,053) 2,534  
Total realized and unrealized credit derivative income (loss), net7,884
 3,165
Total realized and unrealized credit derivative income (loss), net(33,052) 7,884  
In the three months ended March 31, 2019,2020, we recorded an increasea decrease of $4.7$40.9 million in realized and unrealized credit derivative income (loss), net compared to the same periodperiods in 2018 because the increases2019. The decrease was primarily driven by a decline in the valuationfair value of theour GSE CRT debt host contracts exceededembedded derivatives in the increases in valuation of the hybrid financial instruments.


three months ended March 31, 2020 as asset prices dropped due to spread widening.
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Net Loss on Extinguishment of Debt
As discussed in Note 7 - "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 between March 23, 2020 and March 31, 2020. We fully retiredrecorded early termination and legal fees paid to our Exchangeable Senior Notes (the "Notes") upon their maturity on March 15, 2018 and recognizedcounterparties that were associated with the termination of these repurchase agreements as a net loss on extinguishment of debt in our condensed consolidated statement of $26,000.operations.
Other Investment Income (Loss), net
Our other investment income (loss), net during the three months ended March 31, 2020 and 2019 primarily consists of quarterly dividends from FHLBI stock. Our other investment income (loss), net during the three months ended March 31, 2018 consisted of (i) quarterly dividends from FHLBI stock and an investment in an exchange-traded fund, and (ii) foreign exchange rate gains and losses related to a commercial loan investment denominated in a foreign currency. The table below summarizes the components of other investment income (loss), net for the three months ended March 31, 2019 and 2018.
 Three Months Ended March 31,
$ in thousands2019 2018
Dividend income1,029
 1,288
Gain (loss) on foreign currency transactions, net—
 1,814
Total1,029
 3,102
We are required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of secured advances from the FHLBI. We earn dividend income on our investment in FHLBI stock, and the amount of our dividend income varies based upon the number of shares that we are required to own and the dividend declared per share.

Expenses

We incurred foreign exchange gains on the revaluationmanagement fees of a commercial loan investment (notional amount of £34.5$11.0 million (March 31, 2019: $9.5 million) for the three months ended March 31, 2018 due to the fluctuation in the Pound Sterling/ U.S. Dollar foreign exchange rate. The loan was repaid in the third quarter of 2018. We enter into currency forward contracts as an economic hedge against our foreign currency exposure. Changes in the fair value of our currency forward contracts are recognized in gain (loss) derivative instruments, net in the condensed consolidated statements of operations. During the three months ended March 31, 2018, we recognized net losses of $2.3 million on our currency forward contracts.
Expenses
We incurred management2020. Management fees of $9.5 million (March 31, 2018: $10.2 million)increased for the three months ended March 31, 2019. Management fees decreased for the three ended March 31, 20192020 compared to the same periodsperiod in 2018 primarily2019 due to a higher management fee base. Our management fees are calculated quarterly in arrears. Our management fee will be lower shareholders' equityin the three months ended June 30, 2020 because the majority of realized losses on our derivative contracts and unrealized losses on our investments due to spread widening did not occur until March 2020. Realized losses on sales of investments in the three months ended June 30, 2020 will further reduce the management fee base in 2019.the three months ended September 30, 2020. Refer to Note 11 – "Related Party Transactions" of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.
Our general and administrative expenses not covered under our management agreement amounted to $2.3$3.1 million (March 31, 2018: $1.82019: $2.3 million) for the three months ended March 31, 2019.2020. 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 higher for the three months ended March 31, 2020 compared to the same period in 2019 versus 2018 primarily due to higher fees paid for derivative transactionsthird-party legal and advisory services in the 2019 period and the write-off of previously deferred costsconnection with navigating market disruption associated with the Company's at-the-market program.COVID-19 pandemic totaling $1.1 million.

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Net Income (Loss) attributable to Common Stockholders
For the three months ended March 31, 2019,2020, our net incomeloss attributable to common stockholders was $127.7 million$1.6 billion (March 31, 2018: $41.52019: $127.7 million net income attributable to common stockholders) or $1.05$10.38 basic and diluted net incomeloss per average share available to common stockholders (March 31, 2018: $0.372019: $1.05 basic and diluted net income per average share available to common stockholders). The change in net income (loss) attributable to common stockholders was primarily due to (i) a net gainlosses on investmentsderivative instruments of $268.4$910.8 million in the 20192020 period compared to a net loss on investments of $160.4 million in the 2018 period, (ii) a net losslosses on derivative instruments of $201.5 million in the 2019 period; (ii) a net loss on investments of $755.5 million in the 2020 period compared to a net gaingains on derivative instrumentsinvestments of $133.4$268.4 million in the 20182019 period; (iii) credit derivative net losses of $33.1 million in the 2020 period (iii)compared to credit derivative net income of $7.9 million in the 2019 period compared to credit derivative net income of $3.2 million in the 2018 periodperiod; and (iv) a $11.0$27.0 million decreaseincrease in net interest income.
For further information on the changes in net gain (loss) on investments, net gains (loss) on derivative instruments, net gain (loss) on investments, realized and unrealized credit derivative income (loss), net and net interest income, see preceding discussion under "Gain (Loss) on Investments,Derivative Instruments, net," "Gain (Loss) on Derivative Instruments,Investments, net," "Realized and Unrealized Credit Derivative Income (Loss), net," and "Net Interest Income."
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Non-GAAP Financial Measures
We usehave historically used the following non-GAAP financial measures to analyze the Company's operating results and believe these financial measures are useful to investors in assessing our performance as further discussed below:
•core earnings (and by calculation, core earnings 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
•repurchase agreement 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. 
We are not presenting core earnings for the three months ended March 31, 2020 ("first quarter 2020 core earnings") because core earnings excludes the material adverse impact that the market disruption caused by the COVID-19 pandemic has had on our financial condition. In addition, first quarter 2020 core earnings are not indicative of the reduced earnings potential of our current investment portfolio. We intend to resume reporting core earnings when its presentation provides a useful measure of our portfolio’s earning capacity.

We are also not presenting a repurchase agreement debt-to-equity ratio. ratio because this ratio as of March 31, 2020 is not indicative of how we have historically managed our business prior to the market disruption caused by the COVID-19 pandemic. In addition, we do not have any repurchase agreements as of the date of this release.
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.
Core Earnings
We calculate core earnings 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; realized and unrealized (gain) loss on GSE CRT embedded derivatives, net; (gain) loss on foreign currency transactions, net; amortization of net deferred (gain) loss on de-designated interest rate swaps; net loss on extinguishment of debt; and cumulative adjustments attributable to non-controlling interest. We may add and have added additional reconciling items to our core earnings calculation as appropriate.
We believe the presentation of core earnings provides a consistent measure of operating performance by excluding the impact of gains and losses described above from operating results. We exclude the impact of gains and losses because 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

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other income (loss) in our condensed consolidated statements of operations. In addition, certain gains and losses represent one-time events.
We believe that providing transparency into core earnings enables our investors to consistently measure, evaluate and compare our operating performance to that of our peers over multiple reporting periods. However, we caution that core earnings 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, including our ability to make cash distributions.
The table below provides a reconciliation of U.S. GAAP net income (loss) attributable to common stockholders to core earnings for the following periods:
 Three Months Ended March 31,
$ in thousands, except per share data2019 2018
Net income attributable to common stockholders127,683
 41,471
Adjustments:   
(Gain) loss on investments, net(268,382) 160,370
Realized (gain) loss on derivative instruments, net (1)
232,387
 (113,578)
Unrealized (gain) loss on derivative instruments, net (1)
(26,418) (31,901)
Realized and unrealized (gain) loss on GSE CRT embedded derivatives, net (2)
(2,534) 2,468
(Gain) loss on foreign currency transactions, net (3)
—
 (1,814)
Amortization of net deferred (gain) loss on de-designated interest rate swaps(4) 
(5,851) (6,539)
Net loss on extinguishment of debt—
 26
Subtotal(70,798) 9,032
Cumulative adjustments attributable to non-controlling interest—
 (114)
Core earnings attributable to common stockholders56,885
 50,389
Basic income per common share1.05
 0.37
Core earnings per share attributable to common stockholders (5)
0.47
 0.45
(1)U.S. GAAP gain (loss) on derivative instruments, net on the condensed consolidated statements of operations includes the following components:
 Three Months Ended March 31,
$ in thousands2019 2018
Realized gain (loss) on derivative instruments, net(232,387) 113,578
Unrealized gain (loss) on derivative instruments, net26,418
 31,901
Contractual net interest income (expense) on interest rate swaps4,509
 (12,112)
Gain (loss) on derivative instruments, net(201,460) 133,367
(2)U.S. GAAP realized and unrealized credit derivative income (loss), net on the condensed consolidated statements of operations includes the following components:
 Three Months Ended March 31,
$ in thousands2019 2018
Realized and unrealized gain (loss) on GSE CRT embedded derivatives, net2,534
 (2,468)
GSE CRT embedded derivative coupon interest5,350
 5,633
Realized and unrealized credit derivative income (loss), net7,884
 3,165

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(3)U.S. GAAP other investment income (loss) net on the condensed consolidated statements of operations includes the following components:
 Three Months Ended March 31,
$ in thousands2019 2018
Dividend income1,029
 1,288
Gain (loss) on foreign currency transactions, net—
 1,814
Other investment income (loss), net1,029
 3,102
(4)U.S. GAAP repurchase agreements interest expense on the condensed consolidated statements of operations includes the following components:
 Three Months Ended March 31,
$ in thousands2019 2018
Interest expense on repurchase agreements borrowings107,726
 66,124
Amortization of net deferred (gain) loss on de-designated interest rate swaps(5,851) (6,539)
Repurchase agreements interest expense101,875
 59,585
(5)Core earnings per share attributable to common stockholders is equal to core earnings divided by the basic weighted average number of common shares outstanding.
The components of core income for the three months ended March 31, 2019 are:
 Three Months Ended March 31,
$ in thousands2019 2018
Effective net interest income(1)
78,063
 72,074
Dividend income1,029
 1,288
Equity in earnings (losses) of unconsolidated ventures692
 896
Total expenses(11,792) (11,977)
Total core earnings67,992
 62,281
Dividends to preferred stockholders(11,107) (11,107)
Core earnings attributable to non-controlling interest—
 (785)
Core earnings attributable to common stockholders56,885
 50,389
(1)See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.

Core earnings increased $6.5 million in the three months ended March 31, 2019 compared to the same period in 2018 primarily due to a $6.0 million increase in effective net interest income driven by lower effective net interest expense. See below for a discussion of the increase in effective net interest income in the three months ended March 31, 2019 compared to the same period in 2018.



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Effective Interest Income / Effective Yield / Effective Interest Expense / Effective Cost of Funds / Effective Net Interest Income / Effective Interest Rate Margin
We calculate effective interest income (and by calculation, effective yield) as U.S. GAAP total interest income adjusted for GSE CRT embedded derivative coupon interest that is recorded as realized and unrealized credit derivative income (loss), net. We include our GSE CRT embedded derivative coupon interest in effective interest income because GSE CRT coupon interest is not accounted for consistently under U.S. GAAP. We account for GSE CRTs purchased prior to August 24, 2015 as hybrid financial instruments, but we have 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 is recorded as realized and unrealized credit derivative income (loss). We add back GSE CRT embedded derivative coupon interest to our total interest income because we consider 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.
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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, 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 is recorded as realized and unrealized credit derivative income (loss), net.
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, provide information that is useful to investors in understanding our borrowing costs and operating performance.
The following tables reconcile total interest income to effective interest income and yield to effective yield for the following periods:
Three Months Ended March 31,
 20202019
$ in thousandsReconciliationYield/Effective YieldReconciliationYield/Effective Yield
Total interest income186,699  4.19 %187,074  3.91 %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net4,718  0.10 %5,350  0.11 %
Effective interest income191,417  4.29 %192,424  4.02 %
 Three Months Ended March 31,
 2019 2018
$ in thousandsReconciliation Yield/Effective Yield Reconciliation Yield/Effective Yield
Total interest income187,074
 3.91% 153,225
 3.38%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net5,350
 0.11% 5,633
 0.12%
Effective interest income192,424
 4.02% 158,858
 3.50%

Our effective interest income increaseddecreased $1.0 million in the three months ended March 31, 20192020 versus the same periodsperiod in 2018 primarily2019 due to higherlower average earning assets and higher effective yield.assets. Our average earning assets increaseddecreased to $19.2$17.8 billion for the three month period ended March 31, 2019 from $18.1 billion for the same period in 2018 primarily because we invested $258.6 million in net proceeds from common stock issuances and $168.1 million in proceeds from commercial loan repayments in 2018 and the first quarter of 2019 into newly issued 30 year fixed-rate Agency RMBS and Agency CMBS securities. The increase in effective yield for the three months ended March 31, 2019 compared to the same period2020 from $19.2 billion primarily because we sold MBS and GSE CRTs in 2018 was primarilyMarch 2020 for cash proceeds of $16.2 billion due to slower prepayment speeds and higher index rates on floating and adjustable rate assets.

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disruption in the financial markets caused by the COVID-19 pandemic as previously discussed.
The following tables reconcile total interest expense to effective interest expense and cost of funds to effective cost of funds for the following periods.
Three Months Ended March 31,
 20202019
$ in thousandsReconciliationCost of Funds / Effective Cost of FundsReconciliationCost of Funds / Effective Cost of Funds
Total interest expense85,688  2.07 %113,019  2.65 %
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps10,067  0.24 %5,851  0.14 %
Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net(11,924) (0.29)%(4,509) (0.11)%
Effective interest expense83,831  2.02 %114,361  2.68 %
 Three Months Ended March 31,
 2019 2018
$ in thousandsReconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds
Total interest expense113,019
 2.65 % 68,133
 1.74%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps5,851
 0.14 % 6,539
 0.17%
Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net(4,509) (0.11)% 12,112
 0.31%
Effective interest expense114,361
 2.68 % 86,784
 2.22%

Our effective interest expense and effective cost of funds increaseddecreased during the three months ended March 31, 20192020 compared to the same period in 20182019 primarily due to increasedlower interest expense paid on our repurchase agreements as well as higher net interest income earned on our interest rate swaps. We paid interest expense of $85.7 million during the three months ended March 31, 2020 compared to $113.0 million for the same period in 2019 due to lower average borrowings and a lower federal funds target interest rate. We earned contractual net interest income on interest rate swaps of $11.9 million during the three months ended March 31, 2020 compared to $4.5 million for the same period in 2019. Our higher contractual net interest income on interest rate swaps was driven by falling interest rates. SeeFor further information on interest expense and cost of funds, see the preceding captiondiscussion under "Interest Expense and Cost of Funds" for further discussion.
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The following tables reconcile 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 March 31,
 20202019
$ in thousandsReconciliationNet Interest Rate Margin / Effective Interest Rate MarginReconciliationNet Interest Rate Margin / Effective Interest Rate Margin
Net interest income101,011  2.12 %74,055  1.26 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps(10,067) (0.24)%(5,851) (0.14)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net4,718  0.10 %5,350  0.11 %
Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net11,924  0.29 %4,509  0.11 %
Effective net interest income107,586  2.27 %78,063  1.34 %
 Three Months Ended March 31,
 2019 2018
$ in thousandsReconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income74,055
 1.26 % 85,092
 1.64 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps(5,851) (0.14)% (6,539) (0.17)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net5,350
 0.11 % 5,633
 0.12 %
Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net4,509
 0.11 % (12,112) (0.31)%
Effective net interest income78,063
 1.34 % 72,074
 1.28 %

Effective net interest income and effective interest rate margin for the three months ended March 31, 2020 increased from the same period in 2019 increased primarily due to higherlower average borrowings, lower effective net interest expense. We earnedexpense driven by cuts in the federal funds interest rate and higher contractual net interest income on interest rate swaps of $4.5 million in the three months ended March 31, 2019 compared to incurring contractual net interest expense of $12.1 million in the three months ended March 31, 2018 primarily as a result of higher LIBOR rates in 2019.previously discussed.
Effective interest rate margin increased for the three months ended March 31, 2019 compared to the same periods in 2018 primarily due to increases in the federal funds rate over the past twelve months that had a greater impact on our average earning asset yields than on our average cost of funds.


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Repurchase Agreement Debt-to-Equity Ratio
The tables below show the allocation of our equity to our target assets, our debt-to-equity ratio, and our repurchase agreement debt-to-equity ratio as of March 31, 2019 and December 31, 2018. Our debt-to-equity ratio is calculated in accordance with U.S. GAAP and is the ratio of total debt (sum of repurchase agreements, secured loans and exchangeable senior notes) to total equity. We present a repurchase agreement debt-to-equity ratio, a non-GAAP financial measure of leverage, because the mortgage REIT industry primarily uses repurchase agreements, which typically mature within one year, to finance investments. We believe that presenting our repurchase agreement 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 our refinancing risks, and gives investors a comparable statistic to those other mortgage REITs who almost exclusively borrow using short-term repurchase agreements that are subject to refinancing risk.
March 31, 2019
$ in thousandsAgency RMBS and Agency CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Mortgage-backed and credit risk transfer securities15,577,369
3,455,805
2,094,424
21,127,598
Cash and cash equivalents (3)
39,708
25,869
12,905
78,482
Restricted cash5,025
—
—
5,025
Derivative assets, at fair value (4)
26,268
312
—
26,580
Other assets91,933
109,886
59,883
261,702
Total assets15,740,303
3,591,872
2,167,212
21,499,387
     
Repurchase agreements13,508,022
1,642,106
1,674,259
16,824,387
Secured loans (5)
581,896
1,068,104
—
1,650,000
Derivative liabilities, at fair value (4)
8,463
—
—
8,463
Other liabilities300,843
28,468
15,512
344,823
Total liabilities14,399,224
2,738,678
1,689,771
18,827,673
     
Total equity (allocated)1,341,079
853,194
477,441
2,671,714
Adjustments to calculate repurchase agreement debt-to-equity ratio:    
Net equity in unsecured assets (6)
—
(48,583)—
(48,583)
Collateral pledged against secured loans(686,656)(1,260,396)—
(1,947,052)
Secured loans581,896
1,068,104
—
1,650,000
Equity related to repurchase agreement debt1,236,319
612,319
477,441
2,326,079
Debt-to-equity ratio (7)
10.5
3.2
3.5
6.9
Repurchase agreement debt-to-equity ratio (8)
10.9
2.7
3.5
7.2
(1)Investments in non-Agency CMBS, commercial loans and investments in unconsolidated joint ventures are included in commercial credit.
(2)Investments in non-Agency RMBS, GSE CRT and a loan participation interest are included in residential credit.
(3)Cash and cash equivalents are allocated based on a percentage of equity for each asset class.
(4)Derivative assets and liabilities are allocated based on the hedging strategy for each asset class.
(5)Secured loans are allocated based on amount of collateral pledged.
(6)Net equity in unsecured assets includes commercial loans, investments in unconsolidated joint ventures and other.
(7)Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements and secured loans) to total equity.
(8)Repurchase agreement debt-to-equity ratio is calculated as the ratio of repurchase agreements to equity related to repurchase agreement debt.


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December 31, 2018
$ in thousandsAgency RMBS and Agency CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Mortgage-backed and credit risk transfer securities12,127,173
3,286,459
1,983,010
17,396,642
Cash and cash equivalents (3)
68,689
45,632
21,296
135,617
Derivative assets, at fair value (4)
15,089
—
—
15,089
Other assets88,517
115,908
61,732
266,157
Total assets12,299,468
3,447,999
2,066,038
17,813,505
     
Repurchase agreements10,339,802
1,616,473
1,646,209
13,602,484
Secured loans (5)
600,856
1,049,144
—
1,650,000
Exchangeable senior notes—
—
—
—
Derivative liabilities, at fair value (4)
23,219
171
—
23,390
Other liabilities212,057
25,819
13,058
250,934
Total liabilities11,175,934
2,691,607
1,659,267
15,526,808
     
Total equity (allocated)1,123,534
756,392
406,771
2,286,697
Adjustments to calculate repurchase agreement debt-to-equity ratio:    
Net equity in unsecured assets (6)
—
(55,594)—
(55,594)
Collateral pledged against secured loans(702,952)(1,227,412)—
(1,930,364)
Secured loans600,856
1,049,144
—
1,650,000
Equity related to repurchase agreement debt1,021,438
522,530
406,771
1,950,739
Debt-to-equity ratio (7)
9.7
3.5
4.0
6.7
Repurchase agreement debt-to-equity ratio (8)
10.1
3.1
4.0
7.0
(1)Investments in non-Agency CMBS, commercial loans and investments in unconsolidated joint ventures are included in commercial credit.
(2)Investments in non-Agency RMBS and GSE CRT are included in residential credit.
(3)Cash and cash equivalents are allocated based on a percentage of equity for each asset class.
(4)Derivative assets and liabilities are allocated based on the hedging strategy for each asset class.
(5)Secured loans are allocated based on amount of collateral pledged.
(6)Net equity in unsecured assets includes commercial loans, investments in unconsolidated joint ventures and other.
(7)Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements and secured loans) to total equity.
(8)Repurchase agreement debt-to-equity ratio is calculated as the ratio of repurchase agreements to equity related to repurchase agreement debt.

Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repayment ofrepay 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 believeThe COVID-19 pandemic-driven disruptions in the real estate, mortgage and financial markets have negatively affected and are expected to continue to negatively affect our liquidity. Under the terms of our repurchase agreements and secured loans, 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 sufficientthe 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 March 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. Additionally, our lenders raised required haircuts on our collateral for new repurchase agreements, driving further liquidity needs. We sold portfolio assets in order to generate liquidity, in many cases at significantly distressed market prices. These events have required us to maintain higher levels of cash and unencumbered assets. See Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II. Other Information - Item 1A. Risk Factors in this Quarterly Report for more information on how the COVID-19 pandemic has impacted and may continue to impact our 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 condensed consolidated balance sheets is significantly less important than our potential liquidity available under borrowing arrangements. However, there can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls.resources.
We held cash, cash equivalents and restricted cash of $83.5$365.0 million at March 31, 20192020 (March 31, 2018: $119.52019: $83.5 million). OurAs previously discussed, we increased our cash, cash equivalents and restricted cash increased duebalances at March 31, 2020 to normal fluctuationsimprove our liquidity in cash balances related tolight of market disruption created by the timing of

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principal and interest payments, repayments of debt, and asset purchases and sales.COVID-19 pandemic. Our operating activities provided net cash of $68.4$110.0 million for the three months ended March 31, 20192020 (March 31, 2018: $76.82019: $68.4 million).
Our investing activities usedprovided net cash of $11.6 billion in the three months ended March 31, 2020 compared to net cash used by investing activities of $3.5 billion in the three months ended March 31, 2019 compared to net2019. Our primary source of cash provided byfrom investing activities of $325.5 million infor the three months ended March 31, 2018.2020 was proceeds from sales of MBS and GSE CRTs of $16.2 billion (March 31, 2019: $734.8 million) to improve liquidity. We invested $4.3 billion in mortgage-backedalso generated $636.5 million from principal payments of MBS and credit risk transfer securitiesGSE CRTs during the three months ended March 31, 2019 compared2020 (March 31, 2019: $300.2 million). Prior to investments of $298.9 million in mortgage-backed and credit risk transfer securitiesdisruption in the three months ended March��31, 2018. We generated $300.2 million from principal payments of mortgage-backedfinancial markets caused by the COVID-19 pandemic, we invested $4.4 billion in MBS and credit risk transfer securitiesGSE CRTs during the three months ended March 31, 2019 (March 31, 2018: $488.1 million) and $734.8 million from sales of mortgage-backed and credit risk transfer securities.2020 (2019: $4.3 billion). We used cash of $232.4$904.2 million to settleterminate derivative contracts in the three months ended March 31, 2019 compared to cash provided of $113.6 million in the three months ended March 31, 2018. We also generated $7.1 million in proceeds from commercial loan repayments in the three months ended March 31, 20192020 (March 31, 2018: $10.02019: $232.4 million). as we sold our Agency securities and our sensitivity to interest rates decreased.
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Our financing activities providedused net cash of $3.4$11.6 billion for the three months ended March 31, 2019 compared to2020 primarily because we repaid our repurchase agreement borrowings with proceeds from asset sales (2019: net cash usedprovided by financing activities of $371.8$3.4 billion). We repaid net repurchase agreement borrowing of $11.2 billion (March 31, 2019: net proceeds provided $3.2 billion). In addition, we repaid $300.0 million inof secured loans from the three months ended March 31, 2018. Proceeds from issuanceFHLBI upon their maturity on February 11, 2020. We also used cash of common stock provided $259.0$74.8 million for the three months ended March 31, 2019. Repurchase agreement borrowings provided net proceeds of $3.2 billion2020 (March 31, 2018: net use2019: $58.0 million) to pay dividends. Proceeds from issuance of $169.7 million). We used cash of $143.4 million to retire our exchangeable senior notes in the three months ended March 31, 2018. We also used cash of $58.0common stock provided $347.3 million for the three months ended March 31, 20192020 (March 31, 2018: $58.62019: $259.0 million) to pay dividends..
As of March 31, 2019, our wholly-owned subsidiary, IAS Services, had $1.65 billion in outstanding secured loans from the FHLBI. As of March 31, 2019, the FHLBI secured loans were collateralized by non-Agency CMBS and Agency RMBS with a fair value of $1.3 billion and $686.7 million, respectively.
As of March 31, 2019,2020, the average margin requirement (weighted by borrowing amount), or the percentage amount by which the collateral value must exceed the loan amount (also referreferred to as the "haircut") under our repurchase agreements was 5.0%5.2% for Agency RMBS, 5.2%5.4% for Agency CMBS, 18.1%17.1% for non-Agency RMBS, 18.3%20.7% for GSE CRT and 19.0%21.0% for non-Agency CMBS. Across our repurchase agreement facilities, the haircuts rangeranged from a low of 3.0%5.0% to a high of 20.0%8.0% for Agency RMBS, a low of 5%5.0% to a high of 10%10.0% for Agency CMBS, a low of 8.0% to a high of 35.0% for non-Agency RMBS, a low of 15%13.0% to a high of 25%50.0% for GSE CRT and a low of 10.0% to a high of 30.0%40.0% for non-Agency CMBS. Declines inOur repurchase agreement counterparties increased haircuts during the three months ended March 31, 2020 as financial conditions deteriorated and the fair value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements. An event of default or termination event would give some of our counterparties the optionbecame more difficult to terminate all repurchase transactions existing with us and require any amount due by 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, as discussed above, 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 or a secured 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 the margin call in cash or pledge additional collateral to meet that margin call. Under our repurchase facilities and secured loans, 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 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.

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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 continue 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.determine.
Forward-Looking Statements Regarding Liquidity
As previously discussed, we repaid all of our repurchase agreement borrowings on May 7, 2020 and reduced the balance of our secured loans from $1.35 billion at March 31, 2020 to $837.5 million as of May 31, 2020.
As of May 31, 2020, our investment portfolio is primarily composed of credit assets that are financed by FHLBI. Our secured loans are due by December 2020, and we intend to repay FHLBI with proceeds from sales of assets that are currently collateralizing our secured loans.
We have approximately $540 million of unencumbered securities as of May 31, 2020 and unrestricted cash of $272.5 million. We intend to finance the purchase of new Agency investments with a moderate amount of repurchase agreement borrowings or other financing arrangements. We will determine the amount of leverage on new investments based upon the type of investment and market conditions at the time of investment.
Based upon our current portfolio, leverage rateexisting borrowing arrangements and available borrowing arrangements,anticipated proceeds from sales of assets that are currently collateralizing our secured loans, 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 forfund other general corporate expenses.
Our ability to meet our long-term (greater than one year) liquidity and capital resource requirements will be subject to obtaining additional debt financing. We may increase our capital resources by obtaining long-term credit facilities or through public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock, and 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 pursuant tounder which our Manager is entitled to receive a management fee and the reimbursement of certain expenses.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 a description of adjustments made to our stockholders' equity for purposes of calculatingadditional information on how our management fee.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.
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As of March 31, 2019,2020, we had the following contractual obligations:
 Payments Due by Period
$ in thousandsTotalLess than 1
year		1-3 years3-5 yearsAfter 5
years
Repurchase agreements (1)
6,287,746  6,287,746  —  —  —  
Secured loans (2)
1,350,000  100,000  —  —  1,250,000  
Interest expense on repurchase agreements (3)
11,596  11,596  —  —  —  
Interest expense on secured loans (2) (3)
84,800  33,343  30,936  19,594  927  
Total (4)
7,734,142  6,432,685  30,936  19,594  1,250,927  
 Payments Due by Period
$ in thousandsTotal 
Less than 1
year
 1-3 years 3-5 years 
After 5
years
Repurchase agreements16,824,387
 16,784,017
 40,370
 —
 —
Secured loans1,650,000
 —
 400,000
 —
 1,250,000
Total (1)
18,474,387
 16,784,017
 440,370
 —
 1,250,000
(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.
As(1)We repaid all ofMarch 31, 2019, we have approximately $121.9 million and $234.8 million in contractual interest payments related to our repurchase agreements andas of May 7, 2020.
(2)The FHLBI modified the terms of our secured loans respectively.in the second quarter of 2020 as discussed in Note 15 - "Subsequent Events". The balance of our secured loans is due by December 2020.
(3)Interest expense is calculated based on variable rates in effect at March 31, 2020.
(4)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.
The above table does not include total commitments of approximately $510.2 million to fund the purchase of Agency CMBS securities because those securities are reported as an investment related payable in our condensed consolidated balance sheet as of March 31, 2020. We have sold our Agency CMBS holdings as of the filing date of this Quarterly Report.
Off-Balance Sheet Arrangements
We have committed to invest up to $122.5$125.1 million in unconsolidated ventures that are sponsored by an affiliate of our Manager. As of March 31, 2019, $114.92020, $118.7 million of our commitment to these unconsolidated ventures hashad been called. We are committed to fund $7.6$6.4 million in additional capital to fund future investments and cover future expenses should they occur.
As of March 31, 2019,2020, we havehad an unfunded commitment on a loan participation interest in a secured loan of $21.2$49.6 million.

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Share-Based Compensation
We established the 2009 Equity Incentive Plan for grants of common stocksold our loan participation interest on April 1, 2020 and other equity based awards to our independent directors and officers and employees of our Manager and its affiliates (the "Incentive Plan"). Under the Incentive Plan, a total of 1,000,000 shares of common stock are authorized for issuance. As of March 31, 2019, 748,492 shares of common stock remain available forno longer have any future issuance under the Incentive Plan. The Incentive Plan was initially scheduled to terminate on June 30, 2019 but was amended and restated as of May 3, 2019 extending the term an additional ten years.
We recognized compensation expense of approximately $113,000 (March 31, 2018: $93,000) for shares issued to our independent directors under the Incentive Plan for the three months ended March 31, 2019. During the three months ended March 31, 2019 and 2018, we issued 7,065 shares and 7,177 shares of common stock, respectively, to our independent directors. The fair market value of the shares granted was determined by the closing stock market price on the date of the grant. The grants vested immediately.
We recognized compensation expense of approximately $19,000 (March 31, 2018: $14,000) for the three months ended March 31, 2019 for restricted stock units awarded to employees of our Manager and its affiliates under the Incentive Plan. Our Manager reimburses us for the cost of these restricted stock awards under the terms of our management agreement. At March 31, 2019 there was approximately $185,000 of total unrecognized compensation costfinancing commitments related to restricted stock unit awards that is expected to be recognized over a period of up to 48 months, with a weighted-average remaining vesting period of 24 months.this loan participation interest.
The following table summarizes the activity related to restricted stock units awarded to employees of our Manager and its affiliates for the three months ended March 31, 2019.
 Three Months Ended March 31,
 2019
 Restricted Stock Units 
Weighted Average Grant Date Fair Value (1)
Unvested at the beginning of the period11,051
 $14.55
Shares granted during the period6,189
 15.92
Shares vested during the period(4,720) 14.48
Unvested at the end of the period12,520
 $15.25
(1)The grant date fair value of restricted stock awards is based on the closing market price of our common stock at the grant date.
Dividends
We intend to continue regular quarterly distributions to holders ofTo maintain our common stock and preferred stock.qualification as a REIT, U.S. federal income tax law generally requires that a REITwe distribute at least 90% of itsour REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that itgains. We must pay tax at regular corporate rates to the extent that itwe annually distributesdistribute less than 100% of itsour 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 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 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 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, 2019.
Inflation
Virtually all of our assets and liabilities are sensitive to interest rates. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates.
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.

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Exposure to Financial Counterparties
We historically 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.
We also use bilateral interest rate swaps to manage our interest rate risk. Under these agreements, we pledge assets from our investment portfolio and cash as collateral. If a counterparty were to default on its obligations, we would be exposed to potential losses to the extent the amountAs of securities or cash pledgedMarch 31, 2020, two counterparties held collateral that exceeded the unrealized loss foramounts borrowed under the associated derivative, includingrelated repurchase agreements by more than $70.5 million, or 5% of our stockholders' equity. We repaid all of our repurchase agreement borrowings in May 2020 and do not have any repurchase agreement borrowings as of the impactfiling date of any accrued interest due to or from the counterparty. Additionally if a derivative was in an unrealized gain position, we would be exposed to potential losses to the extent that the unrealized gain for the associated derivative exceeded the amount of collateral received, including the impact of any accrued interest due to or from the counterparty.this Quarterly Report.
The following table summarizes our exposure to counterparties by geographic concentration as of March 31, 2019:2020.
$ in thousandsNumber of CounterpartiesRepurchase Agreement FinancingExposure
North America10  3,763,424  440,519  
Europe (excluding United Kingdom)5  1,140,260  137,350  
Asia3  447,803  43,529  
United Kingdom4  936,259  115,482  
Total22  6,287,746  736,880  
$ in thousandsNumber of Counterparties Repurchase Agreement Financing Interest Rate Swaps at Fair Value Exposure
North America17
 6,740,444
 (2,620) 776,950
Europe (excluding United Kingdom)6
 2,983,373
 —
 417,647
Asia5
 3,818,497
 —
 267,638
United Kingdom4
 3,282,073
 (2,520) 185,980
Total32
 16,824,387
 (5,140) 1,648,215


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 March 31, 2019,2020, 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, 2019.2020.
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 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(“percentage tests”). The SEC staff has issued a “no-action” letter in which it confirmed that it would not recommend enforcement action if an issuer continues to rely on the exclusion provided by Section 3(c)(5)(C) of the 1940 Act if the issuer does not meet the percentage tests if: (1) the inability to meet those tests is the result of the sale of an underlying asset; (2) proceeds from the sale are invested in government securities, certificates of deposit, or other securities appropriate for the purpose of preserving value pending the investment of the proceeds in assets that meet the percentage tests; and (3) the issuer intends to purchase assets that meet the percentage tests as soon as possible but generally within one year. (Medidentic Mortgage Investors, SEC No-Action Letter (May 23, 1984)). In light of this analysis, we believe that as of March 31, 2019,2020, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 Item Part II. Item 1A - Risk Factors of this Quarterly Report.
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 of limited durationshort-term in nature and will beare periodically refinanced at current market rates. We typically mitigate this interest rate risk through utilization ofby utilizing derivative contracts, primarily interest rate swap agreements, TBAsagreements, futures, and futures contracts.TBAs.
The COVID-19 pandemic caused significant dislocations in financial markets, including the interest rates market. In March 2020, the Federal Open Market Committee lowered the Federal Funds target range to 0 to 0.25%. We currently do not have any interest rate hedges in place given our expectation that normal correlations between hedging instruments and portfolio assets would not follow historical patterns. We intend to resume interest rate hedging activity when normal market correlations resume in the fixed income markets.
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. Most of our repurchase agreements provide financing based on a floating rate of interest calculated on a fixed spread over LIBOR. The fixed spread will vary depending on the type of underlying asset which collateralizes the financing. Accordingly, the portion of our portfolio which consists of floating interest rate assets are match-funded utilizing our expected sources of short-term financing, while our fixed interest rate assets are not match-funded. 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, during this portion of the interest rate and credit cycles, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results. Such delinquencies or defaults could also have an adverse effect on the spread between interest-earning assets and interest-bearing liabilities.
Hedging techniques are partly based on assumed levels of prepayments of our RMBS. If prepayments are slower or faster than assumed, the life of the RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.
Interest Rate Effects on Fair Value
Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire. We face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments.
We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration numbers 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 in order to maintain liquidity and preserve book value.
Uncertainties related to the COVID-19 pandemic caused credit spreads to widen significantly in the second half of March 2020. Unprecedented government responses, including fiscal stimulus, monetary policy actions, and various purchase and financing programs have had 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 polices 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.
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 pursuant to 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 decreasing 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 March 31, 2019,2020, assuming a static portfolio.portfolio and constant financing and credit spreads. When evaluating the impact of changes in interest rates, prepayment assumptions and
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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.
Change in Interest Rates 
Percentage Change in Projected
Net Interest Income
 
Percentage Change in Projected
Portfolio Value
Change in Interest RatesPercentage Change in Projected
Net Interest Income		Percentage Change in Projected
Portfolio Value
+1.00% (9.13)% (1.08)%+1.00%(22.47)%(3.62)%
+0.50% (1.90)% (0.37)%+0.50%(10.87)%(1.80)%
-0.50% (0.52)% (0.16)%-0.50%11.17 %1.66 %
-1.00% (7.07)% (0.94)%-1.00%23.16 %2.72 %
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

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occur that would affect the outcomes. The base interest rate scenario assumes interest rates at March 31, 2019.2020. Furthermore, while we generally expect to retain such assets and the associated interest rate risk 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 March 31, 2019,2020, to be consistent, we also applied a floor of 0% for all anticipated interest rates included in our assumptions. Because ofrelated funding costs. Due to this floor, we anticipate that any hypothetical interest rate shock decrease would havedeclines in funding costs resulting from a limited positive impact on our funding costs; however, because prepayment speeds are unaffected by this floor, we expect that any increase in our prepayment speeds (occurring as a result of anysignificant interest rate decrease or otherwise) could resultwould be limited. At the same time, increases in an accelerationprepayment speed forecasts resulting from lower rates are also limited by this assumption. For purposes of our premium amortization on securities purchased at a premium, and accretion of discount on our securities purchased at a discount. As a result, because this floor limitscalculations, the positive impact of any interest rate decrease on our funding costs, hypothetical interest rate decreases could cause the fair value of our financial instruments and our net interest income to decline.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); 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 believe that our investment strategy will generally keep our credit losses and financing costs low. However, we retain the risk of potential credit losses on all of our residential and commercial mortgage investments. We seek to manage this risk through our pre-acquisition due diligence process. In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends. We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields. These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations. We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and credit enhancement levels relative to collateral performance projections. This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.
The conditions related to the COVID-19 pandemic have adversely affected the fundamentals of 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, in light of the COVID-19 pandemic’s impact on the overall economy, such as rising unemployment levels or changes in consumer behavior related 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 on 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. As a result, loans may experience increased delinquencies and defaults, which could impact the fundamental performance of our mortgage-backed securities. Further, we expect credit rating agencies to reassess transactions that are negatively impacted by these adverse changes. This may result in our investments being downgraded by credit rating agencies.
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Foreign Exchange Rate Risk
We have an investment in a commercial loan denominated in foreign currency and an investmentof €14.1 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 to hedge our foreign currency exposures by purchasing currency forward contracts.
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.

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 March 31, 2019.2020. 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 March 31, 20192020 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.
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 March 31, 2019,2020, we were not involved in any such legal proceedings.
ITEM 1A.RISK FACTORS.
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, 2018,2019, other than those risks related to the COVID-19 pandemic as filed with the SEC on February 20, 2019.described below. 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.

The global COVID-19 pandemic has adversely affected, and will likely continue to adversely affect, the U.S. economy, the mortgage REIT industry and our business.

The COVID-19 pandemic and the related preventative measures are causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. Many businesses, particularly smaller ones within the service-sector, have been forced to close, furlough and/or lay off employees. As a result, U.S. unemployment claims have dramatically risen at unprecedented rates. Other economic activity, including retail sales and industrial production, have slowed as well. Current forecasts of economic activity suggest a meaningful economic contraction in the first half of 2020, with the potential for some economic recovery later in the year. However, the pace, timing and strength of any recovery are still unknown and difficult to predict.

Beginning in the first quarter of 2020, particularly in March, the COVID-19 pandemic began to adversely affect the mortgage REIT industry generally. In addition to negative general economic conditions, the impact of COVID-19 caused severe volatility across asset classes, including mortgage-related assets. Forced sales of the securities and other assets that secure repurchase and other financing arrangements due to drops in fair market value of such collateral have been, and may continue to be, on terms less favorable than might otherwise be available in a regularly functioning market and have, and may continue to generate higher than historical levels of margin calls.

The conditions related to the COVID-19 pandemic discussed above have also adversely affected our business and we expect these conditions to continue during 2020. The significant decrease in economic activity and/or resulting decline in the real estate market could have an adverse effect on the value of our investments in mortgage real estate-related assets. Further, in light of the COVID-19 pandemic’s impact on the overall economy, such as rising unemployment levels or changes in consumer behavior related 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. Elevated levels of delinquency or default would have an adverse impact on the value of our mortgage related assets. In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants on our commercial property assets resulting in potential delinquencies, defaults or declines in asset values. To the extent current conditions persist or worsen, we expect there to be a negative effect on our results of operations, which may reduce earnings and, in turn, cash available for distribution to our stockholders. The continued spread of COVID-19 could also negatively impact the availability of our Manager’s key personnel necessary to conduct our business.

In response to the COVID-19 pandemic, the U.S. government has taken various actions to support the economy and the continued functioning of the financial markets. The Federal Reserve has announced its commitment to purchase unlimited amounts of U.S. Treasuries, mortgage-backed securities, municipal bonds and other assets. In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments. There can be no assurance as to how, in the long term, these and other actions by the U.S. government will affect the efficiency, liquidity and stability of the financial and mortgage markets. To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations and financial condition may continue to be materially adversely affected.


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Our inability to access funding or the terms on which funding is available could have a material adverse effect on our results of operations and financial condition, particularly in light of ongoing market dislocations resulting from the COVID-19 pandemic.

Our ability to fund our operations, meet financial obligations and finance asset acquisitions may be impacted by an inability to secure and maintain our repurchase agreements with counterparties. Because repurchase agreements are short-term commitments of capital, repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace on a continuous basis maturing short-term financings and have and may continue to impose less favorable conditions when rolling such financings. If we are not able to renew or roll our repurchase agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly lower prices and at inopportune times, which could cause significant losses, and may also force us to limit our asset acquisition activities.

Issues related to financing are heightened in times of significant volatility in the financial markets, such as those being experienced now in connection with the COVID-19 pandemic. It is possible that our financing counterparties will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed or markets are illiquid, which could cause significant losses. In addition, if the regulatory capital requirements imposed on our financing counterparties change, they may be required to significantly increase the cost of the financing that they provide to us, or to increase the amounts of collateral they require as a condition to providing us with financing. Our financing counterparties also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance or the terms of such financings, including increased haircuts and requiring additional cash collateral, based on, among other factors, the regulatory environment and their management of actual and perceived risk. Moreover, the amount of financing that we receive under our repurchase agreements will be directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing. Typically, repurchase agreements grant the repurchase agreement counterparty the absolute right to reevaluate the fair market value of the assets that cover the amount financed under the repurchase agreement at any time. If a repurchase agreement counterparty determines in its sole discretion that the value of the assets subject to the repurchase agreement financing has decreased, it has the right to initiate a margin call. These valuations may be different than the values that we ascribe to these assets and may be influenced by recent asset sales at distressed levels by forced sellers. A margin call requires us to transfer additional assets to a repurchase agreement counterparty without any advance of funds from the counterparty for such transfer or to repay a portion of the outstanding repurchase agreement financing. We would also be required to post additional collateral if haircuts increase under a repurchase agreement. In these situations, we could be forced to sell assets at significantly depressed prices to meet such margin calls or increased haircuts and to maintain adequate liquidity, which could cause significant losses.

As a result of the ongoing COVID-19 pandemic, during the first quarter of 2020, we observed a mark-down of a portion of our mortgage assets by the counterparties to our financing arrangements, resulting in us having to post cash or securities to satisfy higher than historical levels of margin calls. Significant margin calls had and could have in the future a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and caused and could cause in the future the value of our common stock to decline. We may be forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity. If these trends continue, it will continue to have a negative adverse impact on our liquidity.

Our ability to make distributions to our stockholders has been and may continue to be adversely affected by the COVID-19 pandemic.

The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors. Consistent with our intention to enhance our liquidity and strengthen our cash position to take advantage of future opportunities, in the second quarter of 2020, our board of directors reduced our quarterly cash dividend on our shares of common stock from prior quarters. The payment of dividends may be more uncertain during severe market disruption in the mortgage, real estate or related sectors, such as those being experienced now as a result of the COVID-19 pandemic.

Additionally, the Internal Revenue Service issued a revenue procedure permitting “publicly offered” REITs, such as us to pay dividends in a mixture of stock and cash, with at least 10% of the total distribution being paid in cash, to satisfy their REIT distribution requirements. Pursuant to this revenue procedure, we have elected and may elect again in the future to make distributions of our taxable income to common stockholders in a mixture of our common stock and cash. As a result, common stockholders may be required to pay income taxes with respect to such dividends in excess of cash received. If a U.S.
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stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we or the applicable withholding agent may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

We have experienced, and may continue to, experience significant changes in our portfolio during times of severe market disruption in the mortgage, real estate or related sectors, such as those being experienced now as a result of the COVID-19 pandemic.

Consistent with current market conditions related to the COVID-19 pandemic and our intention to enhance our liquidity and strengthen our cash position, during the first quarter of 2020 we have reduced leverage and taken other steps to manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, including completing various transactions to reposition our portfolio. Stockholders may not agree with, nor are required to consent to, significant changes to our portfolio.

The COVID-19 pandemic has created an uncertain and volatile interest rate environment, which could adversely affect our business.

The COVID-19 pandemic has created an uncertain and volatile interest rate environment and general fixed income patterns have deviated widely from historical trends, which have and may continue to adversely affect our business. We have experienced historically larger spreads to benchmark rates in the repurchase markets and, in some cases, availability of repurchase financing has been limited or not available. Further, in response to the COVID-19 pandemic, significant government programs, stimulus plans as well as government purchase and finance programs have had and will continue to have an impact on interest rates and fair values of fixed income assets. It is unclear what the impact of these actions will be and how long they will continue to drive the interest rate environment. With respect to prepayments, given the combination of low interest rates, government stimulus and high unemployment, and other disruptions related to the COVID-19 pandemic, it has become more difficult to predict prepayment levels for the securities in our portfolio. Actual prepayment results may be materially different than the assumptions we use. With respect to our hedging activities, we terminated all of our remaining interest rate swaps in March 2020 as we repositioned our portfolio in response to unprecedented market conditions associated with the COVID-19 pandemic and reduced our exposure to interest rate risk. However, we anticipate utilizing hedges in future quarters.

Market disruptions caused by the COVID-19 pandemic have made it more difficult for us to determine the fair value of our investments.

As discussed in Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, market-based inputs are generally the preferred source of values for purposes of measuring the fair value of many of our assets under U.S. GAAP. The markets for our investments have experienced, and continue to experience, extreme volatility, reduced transaction volume and liquidity, and disruption as a result of the ongoing COVID-19 pandemic, which has made it more difficult for us, and for the providers of third-party valuations that we use, to rely on market-based inputs in connection with the valuation of many of our assets under U.S. GAAP. In the absence of market inputs, U.S. GAAP permits the use of management assumptions to measure fair value. However, the considerable market volatility and disruption caused by the COVID-19 pandemic and the considerable uncertainty regarding the ultimate impact and duration of the pandemic have made it more difficult for our management to formulate assumptions to measure the fair value of certain of our assets.

The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed. The value of our common stock and preferred stock could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

We have experienced, and may experience in the future, a decline in the fair value of our investments as a result of the COVID-19 pandemic, which could materially and adversely affect us.

During the quarter ended March 31, 2020, we experienced a significant amount of realized and unrealized losses on our assets. A future decline in the fair value of our investments as a result of the COVID-19 pandemic may require us to recognize
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an impairment under U.S. GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition. The subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we experience a decline in the fair value of our investments, it could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.

Measures intended to prevent the spread of COVID-19 could disrupt our operations.

In response to the outbreak of COVID-19 and the federal and state mandates implemented to control its spread, a significant portion of our Manager’s employees are working remotely. If our Manager’s employees are unable to work effectively as a result of the COVID-19 pandemic, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted. Further, remote work arrangements may increase the risk of cyber-security incidents and cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in the operation of our business and damage to our reputation.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions, and could lead to material adverse declines in the market values of our assets, illiquidity in our investment and financing markets and negatively impact our ability to effectively conduct our business.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended March 31, 2019,2020, we did not repurchase any shares of our common stock.
ITEM 3.
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.
None.

No disclosure required. Please see the Company’s Form 8-Ks filed with the Securities and Exchange Commission on March 24, 2020, March 26, 2020, April 7, 2020, April 17, 2020 and May 11, 2020.
ITEM 4.MINE SAFETY DISCLOSURES.
ITEM 4.  MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5.OTHER INFORMATION.
ITEM 5.  OTHER INFORMATION.
None.


ITEM 6.EXHIBITS.
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.
June 22, 2020INVESCO MORTGAGE CAPITAL INC.
By:
May 8, 2019By:/s/ John M. Anzalone
John M. Anzalone
Chief Executive Officer
May 8, 2019By:/s/ R. Lee Phegley, Jr.
R. Lee Phegley, Jr.
Chief Financial Officer


June 22, 202070By:/s/ R. Lee Phegley, Jr.
R. Lee Phegley, Jr.
Chief Financial Officer


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EXHIBIT INDEX
Item 6.        Exhibits
 
Exhibit
No.
Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
10.1
Fourth Amendment to First Amended and Restated Agreement of Limited Partnership of IAS Operating Partnership LP, dated November 30, 2018
10.231.1 
10.3
Equity Distribution Agreement with respect to the Series A Shares, Series B Shares and Series C Shares, dated March  19, 2019, by and 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 March 19, 2019).
10.4
Invesco Mortgage Capital Inc. 2009 Equity Incentive Plan as Amended and Restated (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on May 7, 2019).
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
32.1
32.2

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101
The following series of unaudited XBRL-formatted documents are collectively included herewith as Exhibit 101. The financial information is extracted from Invesco Mortgage Capital Inc.’s unaudited condensed consolidated interim financial statements and notes that are included in this Form 10-Q Report.
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 72Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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