DYNEX CAPITAL INC (DX)

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

During the second quarter of 2026, financial markets were comparatively calmer as realized volatility moderated from the elevated levels seen earlier in the year, even as investors continued to weigh the outlook for inflation, monetary policy, and global growth against ongoing geopolitical uncertainty. The U.S. economy continued to expand at a moderate pace, with a steady labor market and only a modest increase in inflation expectations. Market participants priced for the possibility of modest Federal Reserve policy rate hikes, but forward rates curves suggested any such hikes would slowly be removed over time as new Federal Reserve Chair Kevin Warsh eventually settled into his new approach for managing the Federal Reserve. Funding markets remained orderly and were well supported by ample system liquidity, and liquidity across the mortgage and repurchase agreement markets continued to function effectively. After spread widening late in the first quarter, spreads across Agency MBS stabilized and moved modestly tighter over the course of the second quarter, supported by muted new mortgage origination supply, the sector's strong liquidity profile, and renewed demand from the GSEs, which increased their purchases of Agency MBS during the bout of widening.

Against this backdrop, Agency MBS continues to offer attractive long‑term return potential relative to other high‑quality fixed‑income assets, particularly given the supply dynamics, the sector's strong liquidity profile, and the potential for incremental GSE demand to provide support against episodes of spread widening. At the same time, fund flows into bond funds remain a steady source of demand. The long-term, demographic-led need for income will likely remain a central theme in developed financial markets. We view current spread levels as attractive and remain attentive to the evolving supply‑and‑demand balance, including the pace and composition of GSE purchases, the trajectory of the Federal Reserve's balance sheet, especially its holdings of Agency MBS and the level of banking‑system reserves. We continue to monitor monetary policy, inflation trends, housing market activity, supply‑and‑demand dynamics, and geopolitical developments, as well as operational and cybersecurity risks, as we assess their potential impact on interest rates, spreads, prepayment behavior, and financing conditions. We remain focused on disciplined portfolio construction, security selection, liquidity management, and balance‑sheet resilience as market conditions continue to evolve.

The charts below show the range of U.S. Treasury and SOFR-based swap rates for the six months ended June 30, 2026 and information regarding market spreads as of and for the periods indicated:

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

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

Summary of Second Quarter 2026 Financial Performance

Our total economic return for the second quarter of 2026 of $0.81 per common share was comprised of an increase in book value of $0.30 per common share and dividends declared of $0.51 per common share. The increase in book value per common share was primarily comprised of a net gain of $102 million on our investment portfolio, net of hedges. The fair value of our Agency MBS benefited from spread tightening late in the second quarter. Although higher interest rates reduced asset valuations during the second quarter, our hedging portfolio effectively mitigated much of this impact, supporting the overall increase in book value. We raised capital of $391 million, net of commissions, using the proceeds to opportunistically add Agency MBS of $2.8 billion. Leverage including TBAs at implied cost decreased to 8.1 times equity, primarily due to the favorable performance of our portfolio.

Interest income increased to $94 million for the second quarter of 2026, driven by our continued deployment of capital into Agency MBS purchases, primarily in 4-5% coupons. Operating expenses for the second quarter of 2026 decreased $5 million, due to the absence of one-time compensation and personnel-related costs recognized during the first quarter of 2026.

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The following table summarizes the changes in the Company's financial position during the three months ended June 30, 2026:

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

(2)Net proceeds from common stock issuance include approximately $391 million from ATM issuances and approximately $1.0 million from amortization of share-based compensation, net of grants, during the three months ended June 30, 2026.

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FINANCIAL CONDITION

Investment Portfolio

Our investment portfolio, including TBAs, as of June 30, 2026, has increased $8.2 billion, or 42%, since December 31, 2025. We added over $10 billion, net of sales, of primarily 30-year fixed rate Agency RMBS during the six months ended June 30, 2026. We reduced our TBA securities by a net notional of $0.6 billion. The following charts compare the composition of our investment portfolio as of the dates indicated:

The following charts compare the percentage distribution by coupon of our 30-year fixed rate Agency RMBS investments, including TBAs, as of the dates indicated:

The following tables compare our 30-year fixed-rate Agency RMBS investments, including TBA dollar roll positions, by coupon as of the dates indicated:

(1)Includes a par value of $9 million of 4.5% 15-year Agency RMBS as of June 30, 2026 and December 31, 2025.

(2)Includes a notional amount of $440 million of 4.5% 15-year TBA securities as of June 30, 2026 and $690 million as of December 31, 2025.

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

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

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

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

(7)Constant prepayment rate (“CPR”

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

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

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

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

EXECUTIVE OVERVIEW

During 2025, shifting U.S. policy and persistent global uncertainty created a favorable backdrop for high-quality, liquid assets like Agency MBS. The second Trump Administration implemented significant tariff increases that generated significantly higher customs revenues and passed the One Big Beautiful Bill Act extending tax provisions from 2017 with additional benefits. Despite these policy shifts and stricter immigration enforcement that contributed to unemployment rising to over 4.0% by year-end, the U.S. economy demonstrated resilience with 2.5% GDP growth through the first three quarters. The combination of moderating inflation, a softening labor market, and policy-driven uncertainty enabled the Federal Reserve to reduce the Federal Funds Rate by 75 basis points in the second half of 2025, bringing the target range to 3.50-3.75%. Additionally, the Fed ended its balance sheet runoff in December, announcing Treasury bill purchases to maintain stable reserve levels and reduce funding market volatility.

With this backdrop, Agency MBS emerged as one of the better performing sectors within the fixed-income

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market due to favorable technical and fundamental drivers. The U.S. Treasury yield curve steepened as short-term rates fell more rapidly than long-term yields while Agency MBS spreads substantially tightened relative to Treasuries. Interest rate volatility declined, which aided a reduction in hedging costs. Supply/demand dynamics were favorable overall as new mortgage originations remained muted while demand increased.

The charts below show the range of U.S. Treasury and Secured Overnight Funding Rate (“SOFR”)-based swap rates for the year ended December 31, 2025 and information regarding market spreads as of and for the periods indicated:

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

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

Summary of 2025 Financial Performance

Our 2025 results directly reflected our ability to capitalize on this favorable environment while maintaining disciplined risk management. For the year ended December 31, 2025, our total economic return ("TER") of $2.75 per common share, or 21.6% of beginning book value, was comprised of an increase in book value of $0.75 per common share and dividends declared of $2.00 per common share. The increase in our book value was predominantly driven by asset appreciation due to tighter spreads between our asset yields and the yields on our interest rate swaps and Treasury futures.The Company's results for 2025 also benefited from higher net interest income due to its purchases of Agency RMBS and CMBS throughout the year at higher yield levels than 2024 while related repurchase agreement financing costs fell following three U.S. Federal Funds rate cuts in 2025. Our increase in the use of SOFR-based interest rate swaps in 2025 added to economic net interest income.

Our total equity and market capitalization as of December 31, 2025 more than doubled since December 31, 2024 primarily because we raised over $1.2 billion through the issuance of over 90 million shares of common stock pursuant to our ATM program. We deployed the majority of this capital into opportunities in the Agency MBS market, while also strengthening our organization with refreshed leadership, a new independent auditor, and an expanded office footprint.

For our shareholders, 2025 delivered a 29.4% total return including dividends and share price appreciation. Over this decade through December 31, 2025, Dynex shareholders have experienced a 67% cumulative total return, or approximately 9% annualized with dividends reinvested.

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The following table summarizes the changes in the Company's financial position during the year ended December 31, 2025:

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

(2)Net proceeds from common stock issuance include approximately $1.2 billion from ATM issuances and approximately $11 million from amortization of share-based compensation, net of grants, during the year ended December 31, 2025.

Outlook for 2026

We believe the favorable macro environment for high-quality, liquid assets will persist into 2026, continuing to support Agency MBS performance. Recent policy actions now point toward a more stable and supportive framework for the mortgage market, creating a strong foundation for forward returns. Most notably, the Administration's January 2026 directive to the GSEs to purchase $200 billion in Agency MBS to support housing affordability creates a powerful technical tailwind. Combined with the potential for modest additional rate cuts, the policy environment has shifted decisively in favor of mortgage market stability. This clarity enhances our confidence in the path ahead for MBS spreads.

We anticipate sustained global demand for high-quality, liquid, dollar-denominated assets as geopolitical uncertainties persist and credit concerns mount in riskier sectors. Agency MBS remain uniquely positioned at the intersection of government-backed credit quality, superior yields to U.S. Treasuries, deep liquidity, and defensive characteristics appropriate for an uncertain late-cycle environment.

While spreads have tightened from the historically wide levels where we deployed capital in 2025, current valuations remain compelling on a forward-looking basis given the policy support, technical factors, and risk-adjusted return characteristics relative to alternatives.

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FINANCIAL CONDITION

Investment Portfolio

Our investment portfolio (including TBAs) as of December 31, 2025, has increased 98% since December 31, 2024. We added $8.2 billion of Agency RMBS and $1.2 billion of Agency CMBS during the year ended December 31, 2025, of which $809 million were pending settlement as of December 31, 2025. The following charts compare the composition of our MBS portfolio (including TBAs) as of the dates indicated:

The following tables compare our 30-year fixed-rate Agency RMBS investments, including TBA dollar roll positions, as of the dates indicated:

(1)Includes a par value of $9 million of 4.5% 15-year Agency RMBS.

(2)Includes a notional amount of $690 million of 4.5% 15-year TBA securities.

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

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

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

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

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

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

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

Our Agency CMBS consist of loans collateralized by multifamily properties. Though we expect our exposure to Agency CMBS to remain modest as a percentage of the total portfolio, we added Agency CMBS selectively during 2025 where the risk-adjusted return profile aligned with our broader strategy. In addition to offering strong relative value, Agency CMBS help diversify and stabilize the portfolio's cash flow and total return profile, given their unique prepayment characteristics and underlying asset base.

Agency CMBS IO are backed by loans collateralized by multifamily properties. Our Agency CMBS IO are from Freddie Mac Series K deals from which interest continues to be advanced even in the event of an underlying default up until liquidation. According to Freddie Mac, 99.7% of the loans in K-deals are current as of December 2025. Our non-Agency CMBS IO were all originated prior to 2018 and are backed by loans collateralized by a number of different property types, such as multifamily, office, retail, hotels, industrial, storage, and others. Our non-Agency CMBS IO investments are nearing maturity and have very little amortized cost remaining; any changes in actual payments may result in large swings in yield as shown below.

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

Repurchase Agreements

Our repurchase agreement borrowings increased to $14 billion as of December 31, 2025 from $7 billion as of December 31, 2024. These borrowings were used to partially finance our purchases of Agency MBS during the year ended December 31, 2025. We have not experienced any difficulty in securing financing with any of our counterparties, and our repurchase agreement counterparties have not indicated any concerns regarding leverage or credit. Please refer to Note 4 of the Notes to the Consolidated Financial Statements contained within this Annual Report on Form 10-K as well as “Results of Operations” and “Liquidity and Capital Resources” contained within this Item 7 for additional information relating to our repurchase agreement borrowings.

Derivative Assets and Liabilities

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

RESULTS OF OPERATIONS

Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

Net Interest Income and Economic Net Interest Income

Net interest income and net interest spread increased for the year ended December 31, 2025, compared to the year ended December 31, 2024 due to the purchases of higher yielding Agency MBS over the past year. Though interest expense increased due to an increase in repurchase agreement borrowings used to finance these purchases, the average financing rate we paid declined 95 basis points year over year.

Net periodic interest earned on interest rate swaps increased for the year ended December 31, 2025, compared to the year ended December 31, 2024 due to a higher notional amount of interest rate swaps. The combination of higher interest earned on Agency MBS, lower financing rates, and higher periodic interest on interest rate swaps resulted in higher economic net interest income and higher economic net interest spread.

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

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

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

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

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

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

(6)Net periodic interest is the difference between the fixed interest rate we pay and the variable interest rate we receive on our interest rate swaps. It is a component of economic net interest income (expense), a non-GAAP measure. Please refer to the section below “Non-GAAP Financial Measures” for more information.

The following table presents information regarding the performance of our TBA dollar roll transactions for the periods indicated:

(1)Implied net interest income (expense) is also referred to as “drop income (loss)” and represents a portion of the total realized gain (loss) from our TBA dollar roll transactions recorded within “gain (loss) on derivative instruments, net.”

Gains (Losses) on Investments and Derivative Instruments

For the year ended December 31, 2025, gains on our investment portfolio exceeded losses on our hedges by approximately $303 million, which includes $45 million in net periodic interest we earned from interest rate swaps. The fair value of our investment portfolio increased during the year ended December 31, 2025 primarily due to the tightening of mortgage spreads to U.S. Treasuries relative to wider spreads at the time of purchase. U.S. Treasury rates and SOFR-based swap rates declined overall during the year ended December 31, 2025, which resulted in losses on our hedging portfolio.

For the year ended December 31, 2024, net gains from our interest rate hedging portfolio exceeded the net loss in fair value of our investments by $131 million. Through repositioning of our interest rate hedging portfolio, we managed through the volatile interest rate environment of 2024 to offset the negative impact of the increasing 10-year U.S. Treasury rate on our investment portfolio, which was also negatively impacted by widening credit spreads for the majority of 2024.

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

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

(2)Realized gain (loss) for interest rate swaps consists of net periodic interest benefit of $45.1 million for the year ended December 31, 2025 and $16.1 million for the year ended December 31, 2024.

Operating Expenses

Operating expenses for the year ended December 31, 2025 increased $17 million compared to the year ended December 31, 2024 due to higher salary, bonus, and share-based compensation expenses, primarily resulting from an increase in performance-based compensation accruals and from the hiring of new employees. Audit and legal expenses also increased in 2025 compared to 2024 primarily due to the growth of the Company.

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

Please refer to “Results of Operations” within Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of the results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023, which is incorporated herein by reference.

Non-GAAP Financial Measures

In addition to reporting the Company’s financial results determined in accordance with GAAP, management of the Company believes that investors’ understanding of our operating results may be enhanced by the use of non-GAAP financial measures, which are used by management internally, along with GAAP measures, to evaluate our performance. Our non-GAAP financial measures include earnings available for distribution (“EAD”) to common shareholders (including per common share) and economic net interest income and the related metric

economic net interest spread. Management believes these non-GAAP financial measures may be useful to investors because they are viewed by management as additional measures of the investment portfolio’s return.

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

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

Non-GAAP financial measures are not a substitute for GAAP measures and may be different from non-GAAP measures used by other companies. In addition, other companies, including in our industry, may calculate comparable measures differently, which reduces their usefulness as comparative measures. Investors should not rely on any single financial measure when evaluating our business. These non-GAAP measures should be considered as supplemental in nature and not as a substitute for our operating results in accordance with GAAP.

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

During the year ended December 31, 2025, we issued 90,126,672 shares of common stock through our ATM program, resulting in proceeds of $1.2 billion, net of broker commissions and fees. We partially deployed these proceeds into Agency RMBS and to post initial margin requirements related to a larger hedging portfolio.

Our liquidity fluctuates based on our investment activities, leverage, capital raising activities, and changes in the fair value of our investments and derivative instruments. Our measurement of liquidity includes unrestricted cash and cash equivalents and unpledged Agency MBS, which are recognized as assets on our consolidated balance sheet. In our measure of liquidity, we also include the fair value of noncash collateral pledged to us by our counterparties, which we typically receive when the fair value of our pledged collateral exceeds our current margin requirement. Our liquidity as of December 31, 2025, was approximately $1.4 billion, which consisted of unrestricted cash of $531 million, unpledged Agency MBS with a fair value of $901 million, and noncash collateral pledged by our counterparties of $1 million. Our liquidity as of December 31, 2024, was $658 million.

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

In addition to the GSE guarantee of principal payments on our Agency investments, we expect the capital and repurchase agreement markets will remain accessible at capacities sufficient to cover our short-term and long-term liquidity needs.

Our perception of the liquidity of our investments and market conditions significantly influences our targeted leverage. In general, our leverage will increase if we view the risk-reward opportunity of higher leverage on our capital outweighs the risk to our liquidity and book value. Our leverage, which we calculate using total liabilities plus the cost basis of TBA long positions, was 7.3 times shareholders’ equity as of December 31, 2025. We include 100% of the cost basis of our TBA securities in evaluating our leverage because it is possible under certain market conditions that it may be uneconomical for us to roll a TBA long position into future months, which may result in us having to take physical delivery of the underlying securities and use cash or other financing sources to fund our total purchase commitment.

Repurchase Agreements

Leverage based solely on repurchase agreement amounts outstanding was 5.6 times shareholders’ equity as of December 31, 2025. Our repurchase agreement borrowings are uncommitted with terms renewable at the discretion of our lenders and generally have original terms to maturity of overnight to six months, though in some instances, we may enter into longer-dated maturities depending on market conditions. We seek to maintain unused capacity under our existing repurchase agreement credit lines with multiple counterparties, which helps protect us in the event of a counterparty's failure to renew existing repurchase agreements. As part of our continuous evaluation of counterparty risk, we maintain our highest counterparty exposures with broker-dealer subsidiaries of regulated financial institutions or primary dealers.

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

For our repurchase agreement borrowings, we are required to post and maintain margin to the lender (i.e., collateral in excess of the repurchase agreement borrowing) in order to support the amount of the financing. This excess collateral is often referred to as a “haircut” and is intended to provide the lender protection against fluctuations in the fair value of the collateral and/or the failure by us to repay the borrowing at maturity. Lenders have the right to change haircut requirements at maturity of the repurchase agreement and may change their haircuts based on market conditions and the perceived riskiness of the collateral pledged. If the fair value of the collateral falls below the amount required by the lender, the lender has the right to demand additional margin or collateral. If we fail to meet any margin call, our lenders have the right to terminate the repurchase agreement and sell any collateral pledged. The weighted average haircut for our borrowings as of December 31, 2025, was consistent with

prior periods, typically averaging less than 5% for borrowings collateralized with Agency RMBS and CMBS and between 10-14% for borrowings collateralized with CMBS IO.

The collateral we post in excess of our repurchase agreement borrowing with any counterparty is also typically referred to by us as “equity at risk,” which represents the potential loss to the Company if the counterparty is unable or unwilling to return collateral securing the repurchase agreement borrowing at its maturity. The counterparties with whom we have the greatest amounts of equity at risk may vary significantly during any given period due to the short-term and uncommitted nature of the repurchase agreement borrowings. As of December 31, 2025, we had amounts outstanding under 28 different repurchase agreements and did not have more than 10% of equity at risk with any counterparty or group of related counterparties.

We have various financial and operating covenants in certain of our repurchase agreements, which we monitor and evaluate on an ongoing basis for compliance as well as for impacts these customary covenants may have on our operating and financing flexibility. We do not believe we are subject to any covenants that materially restrict our financing flexibility. We were in full compliance with our debt covenants as of December 31, 2025, and we are not aware of circumstances that could potentially result in our non-compliance in the near future.

Derivative Instruments

Derivative instruments we enter into may require us to post initial margin at inception and daily variation margin based on subsequent changes in their fair value. Daily variation margin requirements also entitle us to receive collateral from our counterparties if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement. The collateral posted as margin by us is typically in cash. As of December 31, 2025, we had cash collateral posted to our counterparties of $399 million under these agreements.

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

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

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

Dividends

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

We designate certain derivative instruments as interest rate hedges for tax purposes. Realized gains (losses) resulting from the difference in fair value and the amount of cash received or paid upon termination or maturity of designated derivative instruments are included in GAAP earnings in the same reporting period in which the derivative instrument matures or is terminated by the Company but are generally not recognized in REIT taxable income until future periods. Non-designated derivative instruments are included in GAAP earnings and REIT taxable income in the same period the derivative instrument matures or is terminated by the Company. Our remaining net deferred tax hedge gain was estimated to be $558 million as of December 31, 2025, which will be amortized into REIT taxable income over several years. As of December 31, 2025, we also had $505 million in capital loss carryforwards, all of which will expire by either December 31, 2027 or by December 31, 2028. Due to these amounts and other temporary and permanent differences between GAAP net income and REIT taxable income, coupled with the uncertainty inherent in the forward interest rate curve, we cannot reasonably estimate how much the deferred tax hedge gains to be recognized will impact our dividend declarations during 2026 or in any given period.

We fund dividend distributions through portfolio cash flows, existing cash balances, or through the return of principal from our investments (either through repayment or sale).  Please refer to "Operating and Regulatory Structure" within Part I, Item 1, "Business," as well as Part I, Item 1A, “Risk Factors” of this Annual Report on

Form 10-K for additional important information regarding our deferred tax hedge gains and dividends declared on our taxable income.

RECENT ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING ESTIMATES

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

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

Fair Value Measurements. The fair value of our Agency MBS is based on prices received from an independent third-party pricing service. Most of our MBS are substantially similar to securities actively traded and observable in the market. In valuing a security, the pricing service primarily uses a market approach, which uses observable prices and other relevant information that is generated by market transactions of identical or similar securities, but may also use an income approach, which uses valuation techniques such as discounted cash flow modeling. Examples of the observable inputs and assumptions used in the valuation techniques include market interest rates, credit spreads, and projected prepayment speeds, among other factors. If the fair value of a security is not available from a third-party pricing service, we may estimate the fair value of the security through a variety of methods using observable market data.

Management reviews the prices it receives from the pricing service for reasonableness using additional third-party pricing services. If the price of a security is obtained from quoted prices for similar instruments or model-derived valuations whose inputs are observable, the security is classified as a level 2 security. The security is classified as a level 3 security if the inputs are unobservable, resulting in an estimate of fair value based primarily on management's judgment. Although it is rare, we may exclude a price received from a third party if we determine, based on our knowledge and expertise of the market, that the price received is significantly different from other observable market data. Please refer to Note 6 of the Notes to the Consolidated Financial Statements contained within Part II, Item 8 of this Annual Report on Form 10-K for additional information on fair value measurements.