Financial Performance (Q1 2025) - Net income per common share was $0.26, a recovery from the $(0.09) loss in Q4 2024[8] - Earnings available for distribution per common share increased to $0.64 from $0.53 in the previous quarter[8] - The company declared a common stock dividend of $0.34 per share, down from $0.40 in Q4 2024[8] - Book value per common share slightly decreased to $8.81 from $8.92[8] - Economic return was 2.6%, compared to (0.5)% in the prior quarter[8] - The debt-to-equity ratio increased to 7.1x from 6.7x at the end of the previous quarter[8] Portfolio Allocation and Activity - Agency RMBS represented 83.7% of the investment allocation[8] - Agency CMBS accounted for 15.0% of the investment allocation[8] - Non-Agency RMBS made up 0.1% of the investment allocation, totaling $5.9 billion[8] - Agency CMOs comprised 1.2% of the investment allocation[8] - The company issued $36.0 million of common stock under the at-the-market program[10] - The company repurchased Series C Preferred Stock with a carrying value of $2.2 million[10] - The company held $372 million of unrestricted cash and unencumbered investments at quarter end[10] Portfolio Update (as of April 30) - Estimated book value per common share ranged from $7.74 to $8.06, a decrease from $8.81 at the end of Q1 2025[47] - The company reduced portfolio size by selling higher coupon Agency RMBS to lower risk in a volatile environment[47] - Estimated debt-to-equity ratio decreased to 6.4x from 7.1x at the end of Q1 2025[47] - The company held $336 million in cash and unencumbered investments[47]

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Invesco Mortgage Capital Inc.'s unaudited condensed consolidated financial statements and detailed notes on accounting policies, investments, and equity changes [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) | Metric ($ in thousands) | March 31, 2025 | December 31, 2024 | Change | | :---------------------- | :------------- | :---------------- | :----- | | Total Assets | 6,158,764 | 5,688,034 | +470,730 | | Mortgage-backed securities, at fair value | 5,945,789 | 5,445,508 | +500,281 | | Total Liabilities | 5,399,598 | 4,957,305 | +442,293 | | Repurchase agreements | 5,354,561 | 4,893,958 | +460,603 | | Total Stockholders' Equity | 759,166 | 730,729 | +28,437 | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) | Metric ($ in thousands, except EPS) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Interest income | 73,846 | 68,583 | +5,263 | | Interest expense | 55,025 | 61,580 | -6,555 | | Net interest income | 18,821 | 7,003 | +11,818 | | Gain (loss) on investments, net | 82,158 | (66,153) | +148,311 | | Gain (loss) on derivative instruments, net | (76,679) | 93,161 | -169,840 | | Total other income (loss) | 5,479 | 26,776 | -21,297 | | Total expenses | 4,659 | 4,657 | +2 | | Net income (loss) | 19,641 | 29,122 | -9,481 | | Net income (loss) attributable to common stockholders | 16,289 | 23,730 | -7,441 | | Basic EPS | 0.26 | 0.49 | -0.23 | | Diluted EPS | 0.26 | 0.49 | -0.23 | [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric ($ in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | | :---------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net income (loss) | 19,641 | 29,122 | -9,481 | | Other comprehensive income (loss) | 616 | (163) | +779 | | Comprehensive income (loss) | 20,257 | 28,959 | -8,702 | | Comprehensive income (loss) attributable to common stockholders | 16,905 | 23,567 | -6,662 | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric ($ in thousands) | As of March 31, 2025 | As of December 31, 2024 | Change | | :---------------------- | :------------------- | :---------------------- | :----- | | Total Stockholders' Equity | 759,166 | 730,729 | +28,437 | | Net income (loss) | 19,641 | N/A | N/A | | Other comprehensive income (loss) | 616 | N/A | N/A | | Proceeds from issuance of common stock, net | 35,956 | N/A | N/A | | Common stock dividends | (22,420) | N/A | N/A | | Preferred stock dividends | (3,341) | N/A | N/A | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric ($ in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | | :---------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net cash provided by (used in) operating activities | 19,346 | 57,499 | -38,153 | | Net cash provided by (used in) investing activities | (516,499) | 37,111 | -553,610 | | Net cash provided by (used in) financing activities | 467,777 | (92,742) | +560,519 | | Net change in cash, cash equivalents and restricted cash | (29,376) | 1,868 | -31,244 | | Cash, cash equivalents and restricted cash, end of period | 181,505 | 200,505 | -19,000 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - Invesco Mortgage Capital Inc. primarily invests in, finances, and manages mortgage-backed securities (MBS) and other mortgage-related assets, including Agency RMBS, Agency CMBS, and non-Agency RMBS, operating as a REIT and externally managed by Invesco Advisers, Inc[21](index=21&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - As of March 31, 2025, the total MBS portfolio fair value was **$5,945,789 thousand**, up from **$5,445,508 thousand** at December 31, 2024, with approximately **99.9%** of MBS accounted for under the fair value option, and the company sold its remaining non-Agency CMBS investment during Q1 2025[31](index=31&type=chunk)[32](index=32&type=chunk)[35](index=35&type=chunk) - Repurchase agreements increased to **$5,354,561 thousand** as of March 31, 2025, from **$4,893,958 thousand** as of December 31, 2024, with a weighted average interest rate of **4.47%** (down from 4.80%)[55](index=55&type=chunk)[57](index=57&type=chunk) - Total collateral pledged increased to **$5,755,736 thousand** as of March 31, 2025, from **$5,267,544 thousand** as of December 31, 2024, maintaining a ratio of total repurchase agreements collateral pledged to total repurchase agreements outstanding at **105%** for both periods[58](index=58&type=chunk)[60](index=60&type=chunk)[62](index=62&type=chunk) - The notional amount of interest rate swaps increased to **$3,640,000 thousand** (from $3,265,000 thousand), while futures contracts decreased to **$902,500 thousand** (from $1,402,000 thousand) as of March 31, 2025, resulting in a net loss of **$(76,679) thousand** on derivative instruments in Q1 2025, compared to a net gain of **$93,161 thousand** in Q1 2024[67](index=67&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - Management fees paid to Invesco Advisers, Inc. were **$2,996 thousand** for Q1 2025, up from **$2,861 thousand** in Q1 2024[93](index=93&type=chunk)[94](index=94&type=chunk) - The company repurchased and retired **90,146 shares** of Series C Preferred Stock in Q1 2025, and common stock sales under equity distribution agreements generated net proceeds of **$35,956 thousand** from **4,212,057 shares** sold in Q1 2025, significantly up from **$3,318 thousand** from **365,838 shares** in Q1 2024[98](index=98&type=chunk)[103](index=103&type=chunk) - Basic and diluted EPS were **$0.26** for Q1 2025, down from **$0.49** for Q1 2024[108](index=108&type=chunk) - On May 6, 2025, a Series C Preferred Stock dividend of **$0.46875 per share** was declared, payable on June 27, 2025[110](index=110&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and Q1 2025 results, covering macroeconomic factors, investment portfolio, financing, capital, and risk exposures [Executive Summary](index=24&type=section&id=Executive%20Summary) - Invesco Mortgage Capital Inc. primarily invests in, finances, and manages mortgage-backed securities (MBS) and other mortgage-related assets, aiming for attractive risk-adjusted returns primarily through dividends[114](index=114&type=chunk) - As of March 31, 2025, the company's investments included Agency RMBS, Agency CMBS, and non-Agency RMBS[114](index=114&type=chunk)[117](index=117&type=chunk) - The company operates as a REIT for U.S. federal income tax purposes, requiring distribution of at least **90%** of REIT taxable income annually[116](index=116&type=chunk) [Market Conditions and Impacts](index=25&type=section&id=Market%20Conditions%20and%20Impacts) - Financial conditions tightened in Q1 2025 due to potential U.S. fiscal and trade policy changes, leading to a **4.6%** decline in the S&P 500 and a **10.4%** fall in NASDAQ[119](index=119&type=chunk) - Inflation remained above the Federal Reserve's **2%** target, with headline CPI at **2.4%** year-over-year, while employment data showed a slowing labor market (**152,000 jobs/month** in Q1 vs. **209,000** in Q4)[120](index=120&type=chunk) - Interest rates dropped across the maturity spectrum in Q1 2025 (e.g., 10-year Treasury yield decreased **34 basis points** to **4.24%**), while short-dated interest rate volatility increased[122](index=122&type=chunk)[124](index=124&type=chunk) - Agency RMBS performance was consistent with Treasuries, with higher coupons outperforming, supported by subdued originations and net additions by market participants[123](index=123&type=chunk) [Outlook](index=27&type=section&id=Outlook) - The company remains cautious on the near-term outlook for Agency RMBS due to proposed U.S. fiscal and trade policy changes, which could lead to slower economic growth, higher inflation, and market volatility[126](index=126&type=chunk) - The long-term outlook for Agency RMBS is favorable, anticipating improved demand for higher coupons, eventual decline in interest rate volatility, and a steeper yield curve[126](index=126&type=chunk) - Agency CMBS risk premiums may stay elevated, but limited issuance, strong fundamentals, and stable cash flows are expected to provide support[126](index=126&type=chunk) [Investment Activities](index=27&type=section&id=Investment%20Activities) | Investment Type ($ in thousands) | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------------- | :------------- | :---------------- | :------------- | | Agency RMBS: 30 year fixed-rate pass-through | 4,974,663 | 4,541,525 | 4,649,052 | | Agency CMO | 73,539 | 70,776 | 74,701 | | Agency CMBS | 890,372 | 816,147 | 265,512 | | Non-Agency CMBS | — | 9,836 | 10,188 | | Non-Agency RMBS | 7,215 | 7,224 | 7,651 | | Total investment portfolio | 5,945,789 | 5,445,508 | 5,007,104 | - Total investment portfolio increased to **$5,945,789 thousand** as of March 31, 2025, from **$5,445,508 thousand** as of December 31, 2024[127](index=127&type=chunk)[128](index=128&type=chunk) - Holdings of 30-year fixed-rate Agency RMBS constituted approximately **84%** of the total portfolio as of March 31, 2025, up from **83%** at December 31, 2024[128](index=128&type=chunk) - The company sold its remaining non-Agency CMBS investment in Q1 2025, reducing non-Agency securities to less than **1%** of the portfolio[132](index=132&type=chunk) [Financing and Other Liabilities](index=28&type=section&id=Financing%20and%20Other%20Liabilities) - Collateralized borrowings under repurchase agreements increased to **$5,354,561 thousand** as of March 31, 2025, from **$4,893,958 thousand** as of December 31, 2024[134](index=134&type=chunk)[135](index=135&type=chunk) - The average quarterly balance of repurchase agreements for Q1 2025 was **$4,930,237 thousand**, up from **$4,865,582 thousand** in Q4 2024[135](index=135&type=chunk) [Hedging Instruments](index=28&type=section&id=Hedging%20Instruments) - The company uses interest rate swap agreements to mitigate interest rate changes, paying fixed rates and receiving floating rates indexed to SOFR[137](index=137&type=chunk) - In Q1 2025, the company entered into **$725.0 million** in new interest rate swaps and terminated **$350.0 million**, increasing the notional amount[138](index=138&type=chunk) - Futures contracts are also used for interest rate mitigation; in Q1 2025, **$1.4 billion** in new contracts were entered, and **$1.9 billion** were terminated[139](index=139&type=chunk) [Capital Activities](index=29&type=section&id=Capital%20Activities) - Net proceeds from common stock sales under equity distribution agreements were **$35,956 thousand** in Q1 2025 (**4,212,057 shares**), a significant increase from **$3,318 thousand** in Q1 2024 (**365,838 shares**)[141](index=141&type=chunk)[142](index=142&type=chunk) - The company repurchased and retired **90,146 shares** of Series C Preferred Stock in Q1 2025[144](index=144&type=chunk) Capital Metrics | Metric ($ in thousands, except per share) | March 31, 2025 | December 31, 2024 | Change | | :---------------------------------------- | :------------- | :---------------- | :----- | | Total equity | 759,166 | 730,729 | +28,437 | | Liquidation preference of Series C Preferred Stock | (177,913) | (180,166) | +2,253 | | Total adjusted equity | 581,253 | 550,563 | +30,690 | | Common stock outstanding (shares) | 65,942 | 61,730 | +4,212 | | Book value per common share | 8.81 | 8.92 | -0.11 | - Book value per common share decreased by **1.2%** to **$8.81** as of March 31, 2025, from **$8.92** as of December 31, 2024, primarily due to losses on derivative instruments, dividends, and expenses, partially offset by net interest income and investment gains[146](index=146&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) - Total average earning assets increased by **$450.3 million** (YoY) to **$5,422,552 thousand** in Q1 2025, with average earning asset yields decreasing by **7 basis points** to **5.45%** (YoY), leading to interest income increasing to **$73,846 thousand** in Q1 2025 from **$68,583 thousand** in Q1 2024 due to higher average earning assets[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Net discount accretion decreased in Q1 2025 compared to Q1 2024, as the portfolio shifted to higher coupon securities that have higher amortized costs relative to principal value[157](index=157&type=chunk) - Total average borrowings increased by **$510.5 million** (YoY) to **$4,930,237 thousand** in Q1 2025, with the average cost of funds decreasing by **111 basis points** to **4.46%** (YoY) due to a lower Federal Funds target rate, resulting in interest expense decreasing to **$55,025 thousand** in Q1 2025 from **$61,580 thousand** in Q1 2024[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) - Net interest income increased to **$18,821 thousand** in Q1 2025 from **$7,003 thousand** in Q1 2024, and net interest rate margin improved to **0.99%** from **(0.05)%**, primarily due to a lower cost of funds[164](index=164&type=chunk)[165](index=165&type=chunk) - The company reported net unrealized gains on MBS of **$87.6 million** in Q1 2025, a significant reversal from net unrealized losses of **$62.5 million** in Q1 2024, driven by a sharp decline in interest rates, with total gain on investments, net being **$82,158 thousand** in Q1 2025, compared to a loss of **$(66,153) thousand** in Q1 2024[166](index=166&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk) - Net losses on derivative instruments were **$(76,679) thousand** in Q1 2025, a substantial shift from net gains of **$93,161 thousand** in Q1 2024, primarily due to changes in interest rate expectations[173](index=173&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - Net income attributable to common stockholders decreased to **$16.3 million** (**$0.26 EPS**) in Q1 2025 from **$23.7 million** (**$0.49 EPS**) in Q1 2024, influenced by the interplay of investment gains and derivative losses[184](index=184&type=chunk) [Non-GAAP Financial Measures](index=36&type=section&id=Non-GAAP%20Financial%20Measures) - Earnings Available for Distribution (EAD) decreased to **$40,047 thousand** (**$0.64 per common share**) in Q1 2025 from **$41,816 thousand** (**$0.86 per common share**) in Q1 2024, primarily due to lower effective net interest income, partially offset by increased TBA dollar roll income and lower preferred dividends[193](index=193&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Effective interest expense increased in Q1 2025 due to a decrease in contractual net interest income on interest rate swaps and higher average borrowings, partially offset by a lower Federal Funds target rate[201](index=201&type=chunk)[202](index=202&type=chunk) - Effective net interest income decreased in Q1 2025 compared to Q1 2024 due to a decrease in contractual net interest income on interest rate swaps, partially offset by a lower Federal Funds target rate[204](index=204&type=chunk)[205](index=205&type=chunk) Non-GAAP Financial Metrics | Metric ($ in thousands, except per share) | March 31, 2025 | December 31, 2024 | Change | | :---------------------------------------- | :------------- | :---------------- | :----- | | Repurchase agreements | 5,354,561 | 4,893,958 | +460,603 | | Total stockholders' equity | 759,166 | 730,729 | +28,437 | | Debt-to-equity ratio | 7.1 | 6.7 | +0.4 | | Economic debt-to-equity ratio | 7.1 | 6.7 | +0.4 | - The economic debt-to-equity ratio remained stable at **7.1** as of March 31, 2025, compared to **6.7** as of December 31, 2024, reflecting the impact of off-balance sheet TBA financing[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash, cash equivalents, and restricted cash decreased to **$181.5 million** as of March 31, 2025, from **$200.5 million** as of March 31, 2024[213](index=213&type=chunk) - Operating activities provided **$19.3 million** in net cash in Q1 2025, down from **$57.5 million** in Q1 2024[213](index=213&type=chunk) - Investing activities used **$516.5 million** in net cash in Q1 2025, a significant shift from providing **$37.1 million** in Q1 2024, driven by increased MBS purchases and derivative settlements[214](index=214&type=chunk) - Financing activities provided **$467.8 million** in net cash in Q1 2025, reversing from using **$92.7 million** in Q1 2024, primarily due to net proceeds from repurchase agreements and common stock issuance[215](index=215&type=chunk) - The average margin requirement (haircut) under repurchase agreements was **4.5%** for Agency RMBS and **4.8%** for Agency CMBS as of March 31, 2025[216](index=216&type=chunk) - The company believes it has sufficient short-term liquidity and capital resources, but long-term needs depend on obtaining additional debt financing or equity/debt offerings[223](index=223&type=chunk)[224](index=224&type=chunk) [Exposure to Financial Counterparties](index=41&type=section&id=Exposure%20to%20Financial%20Counterparties) - As of March 31, 2025, one counterparty held collateral exceeding borrowed amounts by over **$38.0 million**, or **5%** of stockholders' equity[226](index=226&type=chunk) - The company has repurchase agreement financing with **21 counterparties** across North America, Asia, and Europe, totaling **$5,354,561 thousand**[227](index=227&type=chunk) [Dividends](index=42&type=section&id=Dividends) - To maintain REIT qualification, the company must distribute at least **90%** of its REIT taxable income annually[228](index=228&type=chunk) - Distribution requirements are based on REIT taxable income, which differs from U.S. GAAP net income due to unrealized gains/losses on investments and derivatives, and temporary differences in premium/discount amortization[229](index=229&type=chunk) [Other Matters](index=42&type=section&id=Other%20Matters) - The company believes it satisfied all REIT asset tests for the period ended March 31, 2025, and intends to maintain REIT qualification for the full year 2025[231](index=231&type=chunk) - The company conducts its business to avoid registration as an investment company under the 1940 Act, relying on specific exclusions (e.g., Section 3(c)(5)(C) for real estate-related assets)[232](index=232&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to interest rate, prepayment, and market value risks, outlining management strategies and providing sensitivity analysis [Interest Rate Risk](index=43&type=section&id=Interest%20Rate%20Risk) - The company is exposed to interest rate risk from its investments and short-term repurchase agreements, which are periodically refinanced at current market rates[235](index=235&type=chunk) - Interest rate risk is mitigated using derivative contracts, primarily interest rate swap agreements and futures contracts[235](index=235&type=chunk) - Rising interest rates can increase borrowing costs, narrowing net interest spread and potentially leading to losses, while also increasing defaults and credit losses[236](index=236&type=chunk) - Hedging effectiveness can be reduced if actual prepayment speeds differ from assumptions, potentially causing losses[237](index=237&type=chunk) [Interest Rate Effects on Fair Value](index=43&type=section&id=Interest%20Rate%20Effects%20on%20Fair%20Value) - Changes in interest rates affect the market value of assets and liabilities, including hedging instruments, potentially at different rates[238](index=238&type=chunk) - Interest rate risk is assessed by estimating the duration of assets and liabilities, which measures market price volatility[239](index=239&type=chunk) - Volatility in fair value can increase significantly with material changes in interest rates, and other factors like yield curve shape and market expectations also impact fair value[240](index=240&type=chunk) [Spread Risk](index=43&type=section&id=Spread%20Risk) - Spread risk, the difference between investment interest rates and risk-free rates, is managed through asset selection, sector allocation, portfolio value-at-risk regulation, and maintaining adequate liquidity[241](index=241&type=chunk) - Changes in spreads impact book value and liquidity, potentially forcing asset sales or strategy changes[241](index=241&type=chunk) [Prepayment Risk](index=44&type=section&id=Prepayment%20Risk) - Prepayment risk affects interest income through the amortization of premiums and accretion of discounts on investments[242](index=242&type=chunk) - Increased prepayment rates accelerate premium amortization (reducing interest income) and discount accretion (increasing interest income)[242](index=242&type=chunk) - Uncertainty in inflation, fiscal/monetary policy, and interest rate volatility makes prepayment prediction difficult, potentially leading to material differences from expectations[243](index=243&type=chunk) [Extension Risk](index=44&type=section&id=Extension%20Risk) - If prepayment rates decrease in a rising interest rate environment, the life of fixed-rate assets can extend beyond the term of hedging instruments, negatively impacting results as borrowing costs become unfixed while asset income remains fixed[245](index=245&type=chunk) - This situation can cause asset market values to decline without offsetting hedging gains, potentially forcing asset sales and incurring losses[245](index=245&type=chunk) [Market Value Risk](index=44&type=section&id=Market%20Value%20Risk) - Available-for-sale securities' fair value fluctuates with interest rates; generally decreasing in a rising rate environment and increasing in a falling one[246](index=246&type=chunk) - Crises can cause extreme volatility and illiquidity in fixed income markets, elevating margin call risk and materially impacting operating results and financial condition[247](index=247&type=chunk) Interest Rate Sensitivity Analysis | Change in Interest Rates | As of March 31, 2025 | As of December 31, 2024 | | :----------------------- | :------------------- | :---------------------- | | | % Change in Projected Net Interest Income | % Change in Projected Portfolio Value | % Change in Projected Net Interest Income | % Change in Projected Portfolio Value | | +1.00% | (6.08)% | (0.75)% | (0.16)% | (0.59)% | | +0.50% | (2.68)% | (0.25)% | 0.02% | (0.21)% | | -0.50% | 2.01% | (0.13)% | (0.48)% | (0.05)% | | -1.00% | 3.65% | (0.77)% | (1.30)% | (0.47)% | - A sensitivity analysis shows that a **+1.00%** change in interest rates could lead to a **(6.08)%** decrease in projected net interest income and a **(0.75)%** decrease in projected portfolio value as of March 31, 2025[248](index=248&type=chunk)[249](index=249&type=chunk) [Real Estate Risk](index=45&type=section&id=Real%20Estate%20Risk) - Residential and commercial property values are volatile and can be adversely affected by economic conditions, local real estate markets, and demographic factors[252](index=252&type=chunk) - Decreases in property values reduce collateral value and borrower repayment capacity, potentially leading to losses for the company[252](index=252&type=chunk) [Credit Risk](index=45&type=section&id=Credit%20Risk) - The company retains credit loss risk on residential mortgage investments, managed through pre-acquisition due diligence and regular re-evaluation based on macroeconomic and loan-specific metrics[253](index=253&type=chunk) - Deteriorating fundamentals and tightening lending conditions can increase loan delinquencies and defaults, impacting MBS performance and potentially leading to downgrades by rating agencies[254](index=254&type=chunk) [Risk Management](index=45&type=section&id=Risk%20Management) - The company manages risk exposure by monitoring and adjusting reset indices and interest rates on assets and financings[255](index=255&type=chunk)[257](index=257&type=chunk) - Strategies include structuring financing with diverse maturities, terms, and adjustment periods, exploring non-marked-to-market financing, and using hedging instruments like interest rate swaps and financial futures[257](index=257&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management assessed the effectiveness of disclosure controls and procedures as of March 31, 2025, concluding they were effective, with no material changes in internal control over financial reporting [Effectiveness of Disclosure Controls and Procedures](index=45&type=section&id=Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) - As of March 31, 2025, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[256](index=256&type=chunk) - These controls provide reasonable assurance that information required for SEC reports is recorded, processed, summarized, and reported timely[256](index=256&type=chunk) - Acknowledged 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[258](index=258&type=chunk) [Changes in Internal Control over Financial Reporting](index=47&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[259](index=259&type=chunk) [PART II OTHER INFORMATION](index=48&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company was not involved in any material legal proceedings as of March 31, 2025 - The company was not involved in any legal proceedings as of March 31, 2025[261](index=261&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported compared to the Annual Report on Form 10-K for December 31, 2024 - No material changes to risk factors were reported during the period covered by this Quarterly Report compared to the Annual Report on Form 10-K for December 31, 2024[262](index=262&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2025, the company repurchased and retired **90,146** shares of Series C Preferred Stock at an average price of **$24.29** per share - The company repurchased and retired **90,146 shares** of Series C Preferred Stock during Q1 2025 at an average price of **$24.29 per share**[263](index=263&type=chunk)[264](index=264&type=chunk) - As of March 31, 2025, **616,513 additional shares** of Series C Preferred Stock remained authorized for repurchase under the program[264](index=264&type=chunk) [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[265](index=265&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[266](index=266&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported[267](index=267&type=chunk) [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, preferred stock articles, and certifications - The exhibit index includes Articles of Amendment and Restatement, Articles Supplementary for Preferred Stock, Certifications (31.1, 31.2, 32.1, 32.2), and XBRL Taxonomy documents[274](index=274&type=chunk)

[Press Release and CEO Update](index=1&type=section&id=Press%20Release) CEO John Anzalone discusses Q1 2025 economic performance, portfolio status, and market outlook [CEO Update](index=1&type=section&id=Update%20from%20John%20Anzalone%2C%20Chief%20Executive%20Officer) CEO John Anzalone discusses Q1 2025 economic performance, portfolio growth, and the impact of market volatility on book value - The **economic return** for **Q1 2025** was **2.6%**, comprising a **$0.34** **dividend per common share** and a **$0.11** decline in **book value per common share**[3](index=3&type=chunk) - The **debt-to-equity ratio** increased to **7.1x** as of March **31**, **2025**, up from **6.7x** at the end of the prior quarter[4](index=4&type=chunk) - The **investment portfolio** totaled **$5.9 billion**, primarily composed of **$5.0 billion** in **Agency RMBS** and **$0.9 billion** in **Agency CMBS**, with **$372 million** in **unrestricted cash and unencumbered investments**[4](index=4&type=chunk) - **Book value per common share** is estimated to have declined to a range of **$7.74** to **$8.06** as of April **30**, **2025**, due to increased interest rate volatility and deteriorating risk sentiment[5](index=5&type=chunk) [Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) The company's Q1 2025 financial performance shows improved net income and EAD, alongside shifts in key balance sheet and interest rate metrics [Key Performance Indicators](index=1&type=section&id=Key%20performance%20indicators) Q1 2025 key performance indicators reflect improved net income and EAD, with changes in dividend, book value, and leverage Q1 2025 vs. Q4 2024 Key Metrics | Metric | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Net income (loss) per common share | $0.26 | ($0.09) | | Earnings available for distribution per common share | $0.64 | $0.53 | | Common stock dividend per common share | $0.34 | $0.40 | | Book value per common share | $8.81 | $8.92 | | Economic return | 2.6% | (0.5)% | Detailed Financial Metrics Q1 2025 vs Q4 2024 | ($ in millions, except per share/ratio) | Q1 2025 | Q4 2024 | Variance | | :--- | :--- | :--- | :--- | | **U.S. GAAP Measures** | | | | | Net interest income | $18.8 | $13.7 | $5.1 | | Net income (loss) attributable to common stockholders | $16.3 | ($5.5) | $21.8 | | Average net interest rate margin | 0.99 % | 0.47 % | 0.52 % | | Book value per common share | $8.81 | $8.92 | ($0.11) | | Debt-to-equity ratio | 7.1 x | 6.7 x | 0.4 x | | **Non-GAAP Measures** | | | | | Earnings available for distribution | $40.0 | $32.3 | $7.7 | | Effective net interest income | $46.9 | $46.0 | $0.9 | | Effective interest rate margin | 3.27 % | 3.13 % | 0.14 % | [Portfolio and Hedging Details](index=3&type=section&id=Portfolio%20Composition) This section details the company's MBS portfolio composition, borrowing strategies, and various hedging instruments used to manage interest rate risk [MBS Portfolio](index=3&type=section&id=Portfolio%20Composition_sub) The MBS portfolio grew in Q1 2025, maintaining concentration in Agency securities with shifts towards higher coupon RMBS MBS Portfolio Composition ($ in thousands) | Category | Fair Value (Mar 31, 2025) | % of Portfolio | Fair Value (Dec 31, 2024) | % of Portfolio | | :--- | :--- | :--- | :--- | :--- | | Total 30 year fixed-rate pass through | $4,974,663 | 83.7% | $4,541,525 | 83.4% | | Agency-CMO | $73,539 | 1.2% | $70,776 | 1.3% | | Agency CMBS | $890,372 | 15.0% | $816,147 | 15.0% | | Non-Agency CMBS | — | —% | $9,836 | 0.2% | | Non-Agency RMBS | $7,215 | 0.1% | $7,224 | 0.1% | | **Total MBS portfolio** | **$5,945,789** | **100.0%** | **$5,445,508** | **100.0%** | [Borrowings](index=3&type=section&id=Borrowings) Total borrowings increased in Q1 2025, with a decreased weighted average interest rate and shorter maturity Borrowings Summary ($ in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Amount Outstanding | $5,354,561 | $4,893,958 | | Weighted Average Interest Rate | 4.47% | 4.80% | | Weighted Average Remaining Maturity (days) | 25 | 29 | [TBA Derivatives](index=3&type=section&id=TBA%20derivatives) The company's net TBA derivative contracts showed a reduced net carrying value liability in Q1 2025 with offsetting notional amounts Net TBA Derivatives Summary ($ in thousands) | Metric | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Net Notional Amount | $— | $— | | Net Implied Cost Basis | $219 | $606 | | Net Carrying Value - Liability | ($219) | ($606) | [Interest Rate Swaps](index=4&type=section&id=interest%20rate%20swaps) The company increased its use of interest rate swaps for hedging, extending maturity and locking in higher fixed pay rates Interest Rate Swaps Summary ($ in thousands) | Metric | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Total Notional Amount | $3,640,000 | $3,265,000 | | Weighted Average Fixed Pay Rate | 1.29% | 0.97% | | Weighted Average Floating Receive Rate | 4.41% | 4.49% | | Weighted Average Years to Maturity | 6.4 | 5.3 | [Futures Contracts](index=4&type=section&id=futures%20contracts) The company significantly reduced its short position in U.S. Treasury futures during Q1 2025, primarily in Ultra 10-year contracts U.S. Treasury Futures Notional Amount - Short ($ in thousands) | Futures Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 10 year U.S. Treasury | $400,000 | $136,000 | | Ultra 10 year U.S. Treasury | $315,000 | $1,057,000 | | 30 year U.S. Treasury | $187,500 | $209,000 | | **Total** | **$902,500** | **$1,402,000** | [Capital Activities](index=4&type=section&id=Capital%20Activities) The company's capital activities for Q1 2025 include common stock dividends, preferred stock dividends, and share issuances and repurchases [Dividends](index=4&type=section&id=Dividends) The company declared common stock and Series C Preferred Stock dividends for Q1 2025 - Declared a **common stock dividend** of **$0.34** per share for **Q1 2025**[22](index=22&type=chunk) - Declared a **Series C Preferred Stock** dividend of **$0.46875** per share, payable in June **2025**[22](index=22&type=chunk) [Stock Issuances and Repurchases](index=4&type=section&id=Issuances%20of%20Common%20Stock) The company issued common stock through its at-the-market program and repurchased Series C Preferred Stock in Q1 2025 - Sold **4,212,057** shares of common stock for **net proceeds** of **$36.0 million** through its at-the-market program[23](index=23&type=chunk) - Repurchased and retired **90,146** shares of **Series C Preferred Stock** for a **total cost** of **$2.2 million**[24](index=24&type=chunk) [Portfolio and Liquidity Update](index=5&type=section&id=Portfolio%20and%20Liquidity%20Update%20as%20of%20April%2030%2C%202025) This section provides an update on the company's investment portfolio and liquidity position as of April 30, 2025 [April 30, 2025 Update](index=5&type=section&id=Portfolio%20and%20Liquidity%20Update%20as%20of%20April%2030%2C%202025_sub) As of April 30, 2025, the company's investment portfolio decreased, with a lower estimated debt-to-equity ratio and maintained liquidity Portfolio and Liquidity Snapshot as of April 30, 2025 | Metric | Value | | :--- | :--- | | Total investment portfolio | $5.1 billion | | Portfolio Composition | 82% Agency RMBS, 18% Agency CMBS | | Unrestricted cash and unencumbered investments | ~$336 million | | Estimated debt-to-equity ratio | 6.4x | [Financial Statements](index=6&type=section&id=Financial%20Statements) This section presents the company's condensed consolidated financial statements, including statements of operations, comprehensive income, and balance sheets [Condensed Consolidated Statements of Operations](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Q1 2025 net income attributable to common stockholders showed a significant recovery from the prior quarter's loss Condensed Consolidated Statements of Operations ($ in thousands) | | Three Months Ended Mar 31, 2025 | Three Months Ended Dec 31, 2024 | | :--- | :--- | :--- | | Net interest income | 18,821 | 13,679 | | Total other income (loss) | 5,479 | (5,392) | | Total expenses | 4,659 | 4,781 | | Net income (loss) | 19,641 | 3,506 | | **Net income (loss) attributable to common stockholders** | **16,289** | **(5,472)** | | **Basic earnings (loss) per share** | **$0.26** | **($0.09)** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) Comprehensive income attributable to common stockholders for Q1 2025 was positive, reversing the prior quarter's loss Condensed Consolidated Statements of Comprehensive Income (Loss) ($ in thousands) | | Three Months Ended Mar 31, 2025 | Three Months Ended Dec 31, 2024 | | :--- | :--- | :--- | | Net income (loss) | 19,641 | 3,506 | | Total other comprehensive income (loss) | 616 | (188) | | **Comprehensive income (loss)** | **20,257** | **3,318** | | **Comprehensive income (loss) attributable to common stockholders** | **16,905** | **(5,660)** | [Condensed Consolidated Balance Sheets](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of March 31, 2025, total assets and liabilities increased, with a rise in stockholders' equity Condensed Consolidated Balance Sheets ($ in thousands) | | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | **ASSETS** | | | | Mortgage-backed securities, at fair value | 5,945,789 | 5,445,508 | | Cash and cash equivalents | 42,894 | 73,403 | | **Total assets** | **6,158,764** | **5,688,034** | | **LIABILITIES AND EQUITY** | | | | Repurchase agreements | 5,354,561 | 4,893,958 | | **Total liabilities** | **5,399,598** | **4,957,305** | | **Total stockholders' equity** | **759,166** | **730,729** | | **Total liabilities and stockholders' equity** | **6,158,764** | **5,688,034** | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) The company presents non-GAAP measures such as Earnings Available for Distribution, effective interest metrics, and economic debt-to-equity ratio to provide additional insights into performance [Earnings Available for Distribution (EAD)](index=9&type=section&id=Earnings%20Available%20for%20Distribution) EAD, a non-GAAP measure, increased in Q1 2025, reflecting the portfolio's income-generating ability for dividends - **EAD** is calculated by adjusting **GAAP net income** for items such as **net gains/losses on investments and derivatives**, and **TBA dollar roll income**, to provide a consistent measure of operating performance[40](index=40&type=chunk)[41](index=41&type=chunk) Reconciliation of Net Income to EAD ($ in thousands) | | Three Months Ended Mar 31, 2025 | Three Months Ended Dec 31, 2024 | | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders | 16,289 | (5,472) | | Adjustments (net) | 23,758 | 37,725 | | **Earnings available for distribution** | **40,047** | **32,253** | | **EAD per common share** | **$0.64** | **$0.53** | [Effective Interest Metrics](index=11&type=section&id=Effective%20Interest%20Expense%2FEffective%20Cost%20of%20Funds%2FEffective%20Net%20Interest%20Income%2FEffective%20Interest%20Rate%20Margin) Effective interest metrics in Q1 2025 demonstrate the positive impact of hedging on funding costs and interest spread - **Effective interest metrics** are calculated by adjusting **GAAP interest expense** and **net interest income** for the contractual **net interest** on **interest rate swaps**, which are recorded in gain/loss on derivatives under **GAAP**[48](index=48&type=chunk)[49](index=49&type=chunk) Reconciliation of GAAP to Effective Interest Metrics (Q1 2025) | Metric | GAAP | Adjustment for Swaps | Effective (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Interest Income ($M) | $18.8 | $28.1 | $46.9 | | Net Interest Rate Margin | 0.99% | 2.28% | 3.27% | | Total Interest Expense ($M) | $55.0 | ($28.1) | $26.9 | | Cost of Funds | 4.46% | (2.28)% | 2.18% | [Economic Debt-to-Equity Ratio](index=12&type=section&id=Economic%20Debt-to-Equity%20Ratio) The economic debt-to-equity ratio, including off-balance sheet financing, increased in Q1 2025 - The **economic debt-to-equity ratio** is a **non-GAAP measure** that adds the implied cost basis of **TBAs** to **total debt** to provide what management believes is a more complete view of at-risk leverage[55](index=55&type=chunk) Debt-to-Equity Ratio Calculation | Ratio | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Debt-to-equity ratio (GAAP) | 7.1x | 6.7x | | Economic debt-to-equity ratio (Non-GAAP) | 7.1x | 6.7x | [Other Information](index=5&type=section&id=Other%20Information) This section provides general company information, earnings call details, and average balance sheet metrics [Company and Earnings Call Information](index=5&type=section&id=About%20Invesco%20Mortgage%20Capital%20Inc.) Invesco Mortgage Capital Inc. is a REIT managed by Invesco Advisers, with Q1 2025 earnings call details provided - The company is a **REIT** externally managed by **Invesco Advisers, Inc.**, focusing on investing in **mortgage-backed securities** and other mortgage-related assets[25](index=25&type=chunk) - An earnings call was scheduled for **9:00 a.m. ET** on May **8**, **2025**, with access details provided for investors and the public[26](index=26&type=chunk) [Average Balances](index=13&type=section&id=Average%20Balances) Q1 2025 average earning assets and borrowings show shifts in yields and costs of funds compared to prior periods Average Balances and Yields/Costs | ($ in thousands) | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Average earning assets | 5,422,552 | 5,440,662 | 4,972,242 | | Average earning asset yields | 5.45 % | 5.60 % | 5.52 % | | Average borrowings | 4,930,237 | 4,865,582 | 4,419,757 | | Average cost of funds | 4.46 % | 5.13 % | 5.57 % |

Core Viewpoint - Invesco Mortgage Capital is experiencing significant stock depreciation and is expected to report a decline in earnings per share (EPS) while showing substantial revenue growth in the upcoming earnings disclosure [1][2]. Group 1: Stock Performance - Invesco Mortgage Capital closed at $6.35, reflecting a +0.32% change from the previous session, which is lower than the S&P 500's daily gain of 1.81% [1]. - The stock has depreciated by 25.44% over the past month, underperforming the Finance sector's loss of 4.82% and the S&P 500's loss of 6.14% [1]. Group 2: Earnings and Revenue Estimates - The anticipated EPS for the upcoming earnings report is $0.56, indicating a 34.88% decline compared to the same quarter last year [2]. - Revenue is expected to be $14.79 million, showing a 111.29% increase compared to the year-ago quarter [2]. - For the full year, projected earnings are $2.22 per share, reflecting a -22.92% change from the previous year, while revenue is expected to be $92.8 million, demonstrating a +151.99% change [3]. Group 3: Analyst Forecasts and Rankings - Recent revisions to analyst forecasts for Invesco Mortgage Capital are important as they reflect short-term business trends and analysts' confidence in the company's performance [4]. - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), currently rates Invesco Mortgage Capital at 4 (Sell), with a consensus EPS projection that has decreased by 11.04% in the past 30 days [6]. Group 4: Valuation Metrics - Invesco Mortgage Capital is trading at a Forward P/E ratio of 2.86, which is a discount compared to the industry average Forward P/E of 7.02 [7]. - The REIT and Equity Trust industry, part of the Finance sector, has a Zacks Industry Rank of 229, placing it in the bottom 8% of over 250 industries [7].

Invesco Mortgage Capital (IVR) closed the latest trading day at $8.17, indicating a +0.49% change from the previous session's end. This move outpaced the S&P 500's daily loss of 0.33%. Meanwhile, the Dow experienced a drop of 0.37%, and the technology-dominated Nasdaq saw a decrease of 0.53%.The real estate investment trust's shares have seen a decrease of 8.03% over the last month, not keeping up with the Finance sector's loss of 0.51% and the S&P 500's loss of 4.03%.The investment community will be closel ...

Company Performance - Invesco Mortgage Capital (IVR) closed at $8.74, reflecting a -0.46% change from the previous day, which is less than the S&P 500's daily loss of 0.22% [1] - The stock has decreased by 1.35% over the past month, contributing to the Finance sector's decline of 3.33% and the S&P 500's loss of 7.48% [1] Earnings Estimates - The upcoming earnings release is anticipated with a consensus estimate of revenue at $14.79 million, representing a 111.29% increase compared to the same quarter last year [2] - For the entire fiscal year, earnings are projected at $2.13 per share and revenue at $92.8 million, indicating changes of -26.04% and +151.99% respectively from the previous year [2] Analyst Sentiment - Recent changes to analyst estimates for Invesco Mortgage Capital suggest a shifting business landscape, with positive revisions indicating optimism regarding the company's profitability [3] - The Zacks Rank system, which reflects these estimate changes, provides a rating system that can help investors make informed decisions [4] Valuation Metrics - Invesco Mortgage Capital is currently trading at a Forward P/E ratio of 4.12, which is a discount compared to the industry average Forward P/E of 8.67 [6] - The REIT and Equity Trust industry, part of the Finance sector, has a Zacks Industry Rank of 210, placing it in the bottom 17% of over 250 industries [6]

Financial Data and Key Metrics Changes - Book value per common share decreased by 4.8% to $8.92, resulting in an economic return of negative 0.5% for the quarter when combined with a $0.40 dividend per share [11][12][33] - Earnings available for distribution declined from $0.68 in Q3 to $0.53 in Q4 due to a one-time charge associated with the redemption of Series B preferred stock [14] Business Line Data and Key Metrics Changes - Agency RMBS portfolio decreased by 11% quarter-over-quarter as lower coupon specified pools were sold to manage leverage and fund agency CMBS purchases [24] - Approximately 85% of the $5.4 billion investment portfolio was invested in agency mortgages, with 15% in agency CMBS [13] Market Data and Key Metrics Changes - Long-term treasury yields ended the quarter sharply higher, with the two-year breakeven rising from 1.77% in September to 2.54% by year-end [7][8] - Agency RMBS underperformed treasury during Q4, primarily in lower coupons due to a sharp rise in interest rates limiting demand for discount securities [9][10] Company Strategy and Development Direction - The company remains cautious on agency mortgages in the near term due to shifting expectations for monetary and fiscal policy, which may lead to elevated interest rate volatility [15] - Long-term outlook for agency mortgages is favorable, expecting improved demand in higher coupons as interest rate volatility declines [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the economic environment remains uncertain, with expectations for only one to two additional cuts in the federal funds target rate through the end of 2025 [8][9] - The company believes it is well-positioned to navigate current mortgage market volatility due to moderate leverage and robust liquidity [33][34] Other Important Information - The company improved its capital structure by redeeming Series E preferred stock, funded primarily with lower-cost repurchase agreements [12][32] - The debt-to-equity ratio increased to 6.7 times at the end of Q4, up from 6.1 times at the end of Q3 [13] Q&A Session Summary Question: How does the company view the risk-reward trade-off of agency RMBS and agency CMBS? - The company added most agency CMBS exposure at the beginning of Q4, but as spreads tightened, it became less attractive compared to agency RMBS, which performed well in early Q1 [36][38][40] Question: What is the company's comfort level with the current dividend? - The board will review various factors, including projected ROEs and competitive dividend yields, before making a recommendation on the dividend [41][43][44] Question: Will there be any incremental changes to the hedge position going forward? - The company is comfortable with the current hedge mix but will continue to monitor swap spreads and may target 20-30% of treasury futures in the current environment [47][49][51] Question: Is the cautious outlook on agency mortgages rate-driven or related to GSE reform? - The market has not reacted to GSE reform headlines, and the company's cautiousness is primarily due to ongoing monetary and fiscal policy uncertainties [54][56][58]

Fourth Quarter 2024 Earnings Call Invesco Mortgage Capital Inc. February 21, 2025 John Anzalone Kevin Collins Mark Gregson David Lyle Brian Norris Chief Executive Officer President Chief Financial Officer Q4 2024 Results | Financial Results | | | Investment Allocation3 | | | | --- | --- | --- | --- | --- | --- | | | Q4 24 | Q3 24 | | | | | Net income (loss) per common share | $(0.09) | $0.63 | | | | | Earnings available for distribution per | $0.53 | $0.68 | Credit Portfolio | | Agency RMBS 83.4% | | common ...

Group 1: Earnings Performance - Invesco Mortgage Capital reported quarterly earnings of $0.53 per share, missing the Zacks Consensus Estimate of $0.66 per share, and down from $0.95 per share a year ago, representing an earnings surprise of -19.70% [1] - The company posted revenues of $13.68 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 7.64%, compared to year-ago revenues of $8.3 million [2] - Over the last four quarters, the company has surpassed consensus EPS estimates just once and has not been able to beat consensus revenue estimates [2] Group 2: Stock Performance and Outlook - Invesco Mortgage Capital shares have increased by approximately 10.6% since the beginning of the year, outperforming the S&P 500's gain of 4.5% [3] - The current consensus EPS estimate for the coming quarter is $0.57 on $14.79 million in revenues, and for the current fiscal year, it is $2.49 on $92.8 million in revenues [7] - The estimate revisions trend for Invesco Mortgage Capital is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The REIT and Equity Trust industry, to which Invesco Mortgage Capital belongs, is currently in the bottom 45% of the Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact investor sentiment [5]

Investment Strategy and Portfolio Management - As of December 31, 2024, the company was primarily invested in Agency MBS, with a focus on providing attractive risk-adjusted returns to stockholders through dividends and capital appreciation[13]. - The company has a diversified investment portfolio that includes Agency RMBS, Agency CMBS, non-Agency CMBS, and non-Agency RMBS, with a strategy to manage interest rate risk through a hedge portfolio[27]. - The company emphasizes a disciplined investment approach, focusing on rigorous quantitative and qualitative analysis to maximize risk-adjusted returns[21]. - The company evaluates investment opportunities based on expected risk-adjusted returns relative to comparable investments and macroeconomic factors[26]. - The company has a strong focus on asset selection and relative value within the mortgage market, aiming to build a diversified portfolio[24]. - The investment committee periodically reviews the portfolio for risk characteristics, investment performance, and compliance with investment policies[23]. - The company employs an active portfolio management strategy, which may expose it to greater losses and lower returns compared to passive strategies[74]. Risk Management - Risk management strategies include monitoring interest rate risk and employing various hedging techniques to mitigate potential mismatches[48]. - The company regularly evaluates credit risk based on economic indicators such as GDP, unemployment, and housing trends[50]. - The company faces competition from various entities, including REITs and financial institutions, which may limit its ability to acquire desirable investments[55]. - The company may face adverse impacts from fluctuations in interest rates and competition for financing sources[61]. - Hedging strategies are employed to mitigate risks from interest rate changes, but they may not fully protect against adverse market conditions[118]. - The company may face margin calls or increased collateral requirements from lenders if the value of secured assets decreases, which could adversely affect its financial condition and liquidity[111]. Financial Performance and Leverage - The company employs leverage to achieve return objectives, adjusting leverage based on asset price volatility and liquidity[45]. - The use of significant leverage increases the risk of substantial losses, particularly in volatile market conditions[61]. - The company may incur losses due to defaults on mortgage loans underlying its investments, which could adversely impact its financial condition[96]. - The fair value of the company's mortgage-backed securities may fluctuate due to market conditions, impacting stockholders' equity[103]. - Changes in the fair value of derivatives may lead to volatility in U.S. GAAP earnings, potentially exceeding consolidated net income in any period[150]. Regulatory Compliance and REIT Status - The company has adopted investment guidelines to ensure compliance with REIT qualifications and to avoid regulation as an investment company under the 1940 Act[15][22]. - To maintain REIT status, the company must distribute at least 90% of its net taxable income to stockholders, which could necessitate borrowing during unfavorable market conditions[180]. - The company must ensure that at least 75% of its assets consist of qualified real estate assets to maintain REIT status, which may require asset liquidation[182]. - The company is subject to a 4% nondeductible excise tax on any amount by which dividends paid are less than specified thresholds[180]. - Compliance with REIT requirements may limit the company's ability to pursue attractive investment opportunities, potentially reducing overall returns[181]. Management and Operational Risks - The company is externally managed by Invesco Advisers, Inc., which provides management expertise and analytical tools to enhance investment performance[14][19]. - The company is entirely reliant on its Manager and key personnel for success, with no separate facilities or employees[152]. - Conflicts of interest exist between the company and its Manager, potentially affecting investment decisions[153]. - The management agreement was not negotiated on an arm's-length basis, potentially resulting in less favorable terms for the company[157]. - Termination of the management agreement without cause is costly and difficult, which may hinder management changes[158]. Market Conditions and Economic Factors - Fluctuations in interest rates could adversely affect the value of investments and increase interest expenses, potentially reducing earnings and cash available for distribution to stockholders[66]. - Elevated interest rates may reduce the availability of target assets, adversely affecting the company's ability to acquire assets that meet investment objectives and generate income[71]. - The U.S. Federal Reserve's actions in the Agency RMBS market could materially impact the supply, price, and returns on Agency RMBS investments[75]. - Economic conditions such as inflation and interest rate volatility could negatively impact the value of investments and collateral, affecting liquidity[131]. Taxation and Dividend Policies - The company has not established a minimum dividend payment level, which may affect future dividend payments[161]. - The company’s ability to pay dividends is subject to various factors, including earnings and financial condition[161]. - Future tax law changes could adversely affect the company's business and financial performance, including potential increases in income tax rates[178]. - Non-U.S. stockholders may be subject to U.S. federal income tax on certain distributions, particularly those related to gains from U.S. real property interests[186]. - The company may incur U.S. federal income taxes on net income from the sale of properties classified as "dealer" properties, which would be subject to a 100% tax[189].