PART I FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The report includes unaudited condensed consolidated financial statements as of September 30, 2023 [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $5.83 billion, while stockholders' equity slightly decreased to $785 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$5,831,343** | **$5,097,395** | | Mortgage-backed securities, at fair value | $5,443,928 | $4,791,893 | | Cash and cash equivalents | $173,921 | $175,535 | | **Total Liabilities** | **$5,046,318** | **$4,293,320** | | Repurchase agreements | $4,987,006 | $4,234,823 | | **Total Stockholders' Equity** | **$785,025** | **$804,075** | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a Q3 2023 net loss of $68.6 million, an improvement from the prior year Statements of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $9,431 | $31,720 | $41,398 | $117,098 | | Gain (loss) on investments, net | ($224,897) | ($260,837) | ($272,620) | ($1,090,101) | | Gain (loss) on derivative instruments, net | $151,689 | $133,549 | $203,418 | $554,151 | | Net Income (Loss) | ($68,599) | ($101,428) | ($43,058) | ($439,385) | | Net Income (Loss) Attributable to Common Stockholders | ($74,024) | ($94,602) | ($59,821) | ($447,562) | | Basic EPS | ($1.62) | ($2.78) | ($1.40) | ($13.42) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $206.1 million for the nine months ended September 30, 2023 Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $206,115 | $126,784 | | Net cash provided by (used in) investing activities | ($899,785) | $2,845,711 | | Net cash provided by (used in) financing activities | $774,634 | ($3,285,182) | | **Net change in cash, cash equivalents and restricted cash** | **$80,964** | **($312,687)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, the Agency RMBS portfolio, and financing via repurchase agreements - The company primarily focuses on investing in, financing, and managing mortgage-backed securities (MBS), with a **significant concentration in Agency RMBS**[23](index=23&type=chunk)[28](index=28&type=chunk) Mortgage-Backed Securities Portfolio (Fair Value, in thousands) | Security Type | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | 30 year fixed-rate Agency RMBS | $5,331,969 | $4,661,737 | | Agency-CMO | $78,007 | $84,956 | | Non-Agency CMBS | $25,987 | $36,787 | | Non-Agency RMBS | $7,965 | $8,413 | | **Total** | **$5,443,928** | **$4,791,893** | - The company finances the majority of its portfolio through repurchase agreements, with the outstanding amount increasing to **$4.99 billion** as of September 30, 2023, from $4.23 billion at year-end 2022[58](index=58&type=chunk)[60](index=60&type=chunk) - As of September 30, 2023, the company held interest rate swaps with a total notional amount of **$6.85 billion** to hedge against interest rate risk[69](index=69&type=chunk)[70](index=70&type=chunk) - During the nine months ended September 30, 2023, the company sold **9.7 million shares** of common stock for net proceeds of **$109.1 million** under its equity distribution agreement[111](index=111&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses market challenges impacting Agency RMBS and the resulting 22% decline in book value - Q3 2023 was marked by restrictive financial conditions, widening credit spreads, and higher interest rates and volatility, leading to a **sharp underperformance of Agency RMBS** relative to Treasuries[133](index=133&type=chunk)[134](index=134&type=chunk) - The company's investment portfolio is predominantly composed of 30-year fixed-rate Agency RMBS, which constituted approximately **98% of the total investment portfolio** as of September 30, 2023[140](index=140&type=chunk) Book Value Per Common Share | Date | Total Equity (thousands) | Adjusted Equity (thousands) | Common Shares Outstanding (thousands) | Book Value Per Share | | :--- | :--- | :--- | :--- | :--- | | Sep 30, 2023 | $785,025 | $481,360 | 48,461 | $9.93 | | Dec 31, 2022 | $804,075 | $495,222 | 38,711 | $12.79 | - Book value per common share **decreased by 22%** from December 31, 2022, to September 30, 2023, primarily due to the sharp underperformance of Agency RMBS amid elevated interest rate volatility and higher rates[158](index=158&type=chunk) - Net interest income for Q3 2023 was **$9.4 million**, a significant decrease from $31.7 million in Q3 2022, primarily due to a higher cost of funds, which rose to **5.36%** from 1.84% year-over-year, outpacing the increase in asset yields[175](index=175&type=chunk)[176](index=176&type=chunk)[181](index=181&type=chunk) Reconciliation to Earnings Available for Distribution (EAD) | ($ in thousands, except per share) | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders | ($74,024) | ($94,602) | | Adjustments (net) | $143,177 | $142,049 | | **Earnings available for distribution** | **$69,153** | **$47,447** | | **EAD per common share** | **$1.51** | **$1.39** | - The company's economic debt-to-equity ratio **increased to 6.4x** as of September 30, 2023, from 5.3x at the end of 2022[233](index=233&type=chunk)[236](index=236&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate, spread, prepayment, and credit risk - The primary components of market risk are identified as **interest rate, principal prepayment, market value, spread, and credit risk**[261](index=261&type=chunk)[269](index=269&type=chunk)[282](index=282&type=chunk) - The company mitigates interest rate risk on its short-term repurchase agreement financing by using derivative contracts, **primarily interest rate swaps**[263](index=263&type=chunk) Interest Rate Sensitivity Analysis (as of Sep 30, 2023) | Change in Interest Rates | Percentage Change in Projected Net Interest Income | Percentage Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | (0.07)% | (0.36)% | | +0.50% | (0.12)% | (0.11)% | | -0.50% | 0.28% | (0.09)% | | -1.00% | 0.56% | (0.45)% | [Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes - The principal executive officer and principal financial officer concluded that the company's **disclosure controls and procedures were effective** as of September 30, 2023[286](index=286&type=chunk) - **No changes in internal control over financial reporting** occurred during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[288](index=288&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) The company was not involved in any material legal proceedings as of September 30, 2023 - The company reports **no involvement in material legal proceedings** as of September 30, 2023[291](index=291&type=chunk) [Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported during the quarter - **No material changes to risk factors** were reported for the period covered by this quarterly report[292](index=292&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased shares of its Series B and Series C Preferred Stock during Q3 2023 Preferred Stock Repurchases (Q3 2023) | Series | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Series B | 34,432 | $22.12 | | Series C | 92,563 | $21.20 | - The share repurchase program, approved in May 2022, allows for the repurchase of up to **3,000,000 Series B shares** and **5,000,000 Series C shares** with no expiration date[295](index=295&type=chunk) [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section indexes the exhibits filed with the Form 10-Q, including required certifications

Invesco Mortgage Capital Inc. (NYSE:IVR) Q2 2023 Earnings Conference Call August 4, 2023 9:00 AM ET Company Participants Greg Seals - Investor Relations John Anzalone - Chief Executive Officer Kevin Collins - President Richard Lee Phegley - Chief Financial Officer David Lyle - Chief Operating Officer Brian Norris - Chief Investment Officer Conference Call Participants Douglas Harter - Credit Suisse Trevor Cranston - JMP Securities Operator Welcome to Invesco Mortgage Capital Inc.'s Second Quarter 2023 Inves ...

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks identified under the captions "Risk Factors," "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________ FORM 10-Q _______________________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-34385 Invesco M ...

Invesco Mortgage Capital Inc. (NYSE:IVR) Q1 2023 Results Conference Call May 10, 2023 9:00 AM ET Company Participants Greg Seals - IR John Anzalone - CEO Brian Norris - CIO Conference Call Participants Douglas Harter - Credit Suisse Trevor Cranston - JMP Securities Matthew Erdner - JonesTrading Operator Welcome to Invesco Mortgage Capital Inc.'s First Quarter 2023 Investor Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions] As a remi ...

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2023 Condensed Consolidated Balance Sheet Highlights ($ in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$5,707,372** | **$5,097,395** | | Mortgage-backed securities, at fair value | $5,447,143 | $4,791,893 | | Cash and cash equivalents | $101,834 | $175,535 | | **Total Liabilities** | **$4,873,257** | **$4,293,320** | | Repurchase agreements | $4,814,700 | $4,234,823 | | **Total Stockholders' Equity** | **$834,115** | **$804,075** | Condensed Consolidated Statements of Operations Highlights ($ in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total interest income | $69,287 | $42,174 | | Total interest expense | $49,726 | $(2,104) | | **Net interest income** | **$19,561** | **$44,278** | | Gain (loss) on investments, net | $51,956 | $(504,388) | | Gain (loss) on derivative instruments, net | $(44,895) | $238,860 | | **Net income (loss)** | **$21,463** | **$(228,422)** | | **Net income (loss) attributable to common stockholders** | **$15,601** | **$(236,816)** | | **Diluted EPS** | **$0.39** | **$(7.18)** | - The company's primary business is investing in, financing, and managing mortgage-backed securities (MBS) and other mortgage-related assets, with a significant focus on Agency RMBS[23](index=23&type=chunk)[28](index=28&type=chunk) - As of March 31, 2023, approximately **99%** of the company's Mortgage-Backed Securities (MBS) portfolio was accounted for under the fair value option[38](index=38&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes the company's financial performance and condition for Q1 2023, covering market conditions, investment strategy, and capital management [Executive Summary, Market Conditions, and Outlook](index=28&type=section&id=Executive%20Summary%2C%20Market%20Conditions%2C%20and%20Outlook) Q1 2023 performance was impacted by interest rate hikes and banking stress, with Agency MBS underperforming, but an attractive investment environment is anticipated - Key market factors in Q1 2023 included interest rate volatility following regional bank failures, two Federal Funds target rate increases, and underperformance of Agency MBS relative to Treasuries[136](index=136&type=chunk) - The company's outlook suggests that a potential end to the FOMC's tightening cycle, reduced interest rate volatility, and favorable funding conditions could create an attractive investment environment for Agency RMBS in 2023[138](index=138&type=chunk) [Investment and Financing Activities](index=31&type=section&id=Investment%20and%20Financing%20Activities) The investment portfolio grew to $5.45 billion, primarily 30-year fixed-rate Agency RMBS, financed mainly through increased repurchase agreements Investment Portfolio Composition ($ in thousands) | Asset Class | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | 30 year fixed-rate Agency RMBS | $5,320,942 | $4,661,737 | | Agency CMO | $81,258 | $84,956 | | Non-Agency CMBS | $36,624 | $36,787 | | Non-Agency RMBS | $8,319 | $8,413 | | **Total Investment Portfolio** | **$5,448,576** | **$4,793,882** | - The company's holdings of 30-year fixed-rate Agency RMBS shifted significantly, with the portfolio as of March 31, 2023, concentrated in coupons ranging from **4.0% to 5.5%**, compared to a concentration in **2.0% to 3.0%** coupons a year prior[142](index=142&type=chunk) Repurchase Agreements Activity ($ in thousands) | Quarter Ended | Quarter-end balance | Average quarterly balance | | :--- | :--- | :--- | | March 31, 2023 | $4,814,700 | $4,734,819 | | December 31, 2022 | $4,234,823 | $3,825,218 | [Hedging and Capital Activities](index=33&type=section&id=Hedging%20and%20Capital%20Activities) The company managed interest rate risk via swap terminations and raised $35.8 million from equity sales, while book value per share slightly decreased - During Q1 2023, the company sold **2,930,069** shares of common stock under its equity distribution agreement, generating net proceeds of **$35.8 million**[154](index=154&type=chunk) Book Value Per Common Share | Date | Book Value Per Common Share | | :--- | :--- | | March 31, 2023 | $12.61 | | December 31, 2022 | $12.79 | [Results of Operations Analysis](index=35&type=section&id=Results%20of%20Operations%20Analysis) Q1 2023 saw a net income reversal to $15.6 million due to investment gains, despite a decline in net interest income from higher funding costs - Net interest income decreased to **$19.6 million** for Q1 2023 from **$44.3 million** in Q1 2022, primarily due to a higher cost of funds related to increases in the Federal Funds target rate[184](index=184&type=chunk) - The company recorded a net gain on investments of **$52.0 million** in Q1 2023, compared to a net loss of **$504.4 million** in Q1 2022, driven by **$65.7 million** in unrealized gains on MBS due to improved valuations as Treasury yields decreased[185](index=185&type=chunk)[188](index=188&type=chunk) - Net losses on derivative instruments were **$44.9 million** in Q1 2023, a stark contrast to net gains of **$238.9 million** in Q1 2022, primarily due to changes in forward interest rate expectations affecting interest rate swaps[193](index=193&type=chunk)[203](index=203&type=chunk) [Non-GAAP Financial Measures](index=41&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP metrics show Earnings Available for Distribution increased to $59.3 million, while the economic debt-to-equity ratio rose to 5.8x Earnings Available for Distribution (EAD) Reconciliation ($ in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders | $15,601 | $(236,816) | | Adjustments (Net) | $43,699 | $274,962 | | **Earnings available for distribution** | **$59,300** | **$38,146** | | **EAD per common share** | **$1.50** | **$1.16** | Economic Debt-to-Equity Ratio | Date | Debt-to-equity ratio (GAAP) | Economic debt-to-equity ratio (Non-GAAP) | | :--- | :--- | :--- | | March 31, 2023 | 5.8x | 5.8x | | December 31, 2022 | 5.3x | 5.3x | [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains $228.9 million in cash and equivalents, with sufficient liquidity for short-term needs, and an average 4.6% margin requirement on Agency RMBS - As of March 31, 2023, the company held **$228.9 million** in cash, cash equivalents, and restricted cash, with management believing it has sufficient liquidity for short-term requirements[238](index=238&type=chunk)[248](index=248&type=chunk) - The average margin requirement, or haircut, under repurchase agreements was **4.6%** for Agency RMBS as of March 31, 2023, with liquidity maintained to manage margin call risk[242](index=242&type=chunk)[244](index=244&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=49&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, and its strategies using derivatives to mitigate them - The company's primary market risks are related to interest rate, principal prepayment, and market value, which are actively managed to ensure sufficient compensation and capital levels[259](index=259&type=chunk) Interest Rate Sensitivity Analysis (as of March 31, 2023) | Change in Interest Rates | Percentage Change in Projected Net Interest Income | Percentage Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | (0.92)% | (1.02)% | | +0.50% | (0.38)% | (0.40)% | | -0.50% | 0.18% | 0.10% | | -1.00% | 0.74% | (0.17)% | - Risk management strategies include monitoring asset and financing characteristics, structuring varied financing terms, and using hedging instruments, primarily interest rate swaps, to manage interest rate sensitivity[281](index=281&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2023[284](index=284&type=chunk) - No changes occurred in the company's internal control over financial reporting during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, these controls[286](index=286&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) As of March 31, 2023, the company was not involved in any material legal proceedings arising in the ordinary course of business - As of March 31, 2023, the company was not involved in any material legal proceedings[289](index=289&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, were reported - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, were reported for the period[290](index=290&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[291](index=291&type=chunk) [Item 3. Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[292](index=292&type=chunk) [Item 4. Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[293](index=293&type=chunk) [Item 5. Other Information](index=53&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period - None[294](index=294&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications - A list of exhibits filed with the Form 10-Q is provided, including corporate governance documents and required officer certifications[295](index=295&type=chunk)[302](index=302&type=chunk)

Invesco Mortgage Capital Inc. (NYSE:IVR) Q4 2022 Earnings Conference Call February 22, 2023 9:00 AM ET Company Participants Matt Seitz - Investor Relations John Anzalone - Chief Executive Officer Brian Norris - Chief Investment Officer Conference Call Participants Doug Harter - Credit Suisse Trevor Cranston - JMP Securities Operator Welcome to Invesco Mortgage Capital Inc.'s Fourth Quarter 2022 Investor Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [O ...

7 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Swap Rate Repo Rate Agency RMBS Yield By excluding the gains and losses discussed above, the Company believes the presentation of earnings available for distribution provides a consistent measure of operating performance that investors can use to evaluate its results over multiple reporting periods and, to a certain extent, compare to its peer companies. However, because not all of the Company's peer companies use identical operating pe ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Invesco Mortgage Capital Inc. is an externally managed REIT investing in mortgage-backed securities, focused on stockholder returns and regulatory compliance - The company is **externally managed** by Invesco Advisers, Inc., which provides its management team and officers as the company has no employees[19](index=19&type=chunk)[21](index=21&type=chunk) - The company maintains its **REIT tax status** by distributing at least **90% of taxable income** and operates to maintain its **1940 Act exclusion**[20](index=20&type=chunk) Primary Target Assets as of December 31, 2022 | Asset Class | Description | | :--- | :--- | | **Agency RMBS** | Residential mortgage-backed securities guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac. | | **Non-Agency CMBS** | Commercial mortgage-backed securities not guaranteed by a U.S. government agency. | | **Non-Agency RMBS** | Residential mortgage-backed securities not guaranteed by a U.S. government agency. | | **TBAs** | To-be-announced securities forward contracts to purchase Agency RMBS. | | **Other** | Other real estate-related financing arrangements. | - The company's financing strategy primarily relies on **short-term repurchase agreements** (1-6 months) to finance its target assets[50](index=50&type=chunk) - Risk management is integral, actively managing **market, credit, liquidity, and foreign exchange risks** through **hedging with derivative instruments**[56](index=56&type=chunk)[57](index=57&type=chunk)[60](index=60&type=chunk)[63](index=63&type=chunk) [Risk Factors](index=13&type=page&id=Item%201A.%20Risk%20Factors) The company faces material risks across business, investment, financing, hedging, company-specific, and tax categories, impacting operations and financial stability [Risks Related to Our Business and Investments](index=14&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Investments) Business and investment risks include economic conditions, Federal Reserve actions impacting Agency RMBS, interest rate fluctuations, spread risk, and intense competition for assets - The **U.S. Federal Reserve's actions** in the Agency RMBS market, including balance sheet contraction, can materially impact **supply, price, and returns**, potentially lowering valuations[79](index=79&type=chunk)[80](index=80&type=chunk) - **Interest rate fluctuations** pose risks, as rising rates increase borrowing costs, and an inverted yield curve can decrease net income; the FOMC increased rates by **425 basis points in 2022**[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - Changes in **mortgage prepayment rates** can adversely affect profitability, with faster prepayments on premium securities accelerating premium expense and reducing income[94](index=94&type=chunk)[95](index=95&type=chunk) - The company operates in a **highly competitive market**, limiting its ability to acquire target assets at attractive prices due to competition from other REITs and financial institutions[105](index=105&type=chunk) [Risks Related to Financing and Hedging](index=21&type=section&id=Risks%20Related%20to%20Financing%20and%20Hedging) Financing and hedging risks include amplified losses from leverage, heavy reliance on short-term repurchase agreements, exposure to margin calls, and the potential for imperfect or costly hedging strategies - The use of **leverage** may adversely affect returns, reduce cash for distributions, and increase losses during unfavorable economic conditions[130](index=130&type=chunk)[132](index=132&type=chunk) - The company **depends heavily on repurchase agreement financing**, which can be impacted by market disruptions leading to tighter lending standards, increased costs, and reduced liquidity[133](index=133&type=chunk)[134](index=134&type=chunk) - Financing arrangements expose the company to **margin calls**, potentially forcing asset sales at depressed prices if pledged asset values decline[137](index=137&type=chunk) - **Hedging activities** may fail to protect earnings due to high costs, imperfect correlation, duration mismatches, and counterparty default risk[143](index=143&type=chunk) [Risks Related to Our Company and Manager](index=25&type=section&id=Risks%20Related%20to%20Our%20Company%20and%20Manager) Company and manager risks include limitations from the 1940 Act exclusion, high dependence on the external manager and key personnel, potential conflicts of interest, and costly termination provisions in the management agreement - Maintaining **1940 Act exclusion** imposes significant operational limits, requiring at least **55% of assets** to be qualifying real estate assets, thus limiting investment flexibility[156](index=156&type=chunk)[157](index=157&type=chunk) - The company is completely reliant on its **external Manager and key personnel** for all operations and investment decisions, with their departure potentially harming performance[168](index=168&type=chunk) - **Conflicts of interest** exist as the Manager and its affiliates manage competing funds, potentially allocating favorable investment opportunities to other clients[169](index=169&type=chunk)[171](index=171&type=chunk) - Termination of the management agreement without cause is **difficult and costly**, requiring a payment of **three times the average annual management fee** over the prior 24-month period[174](index=174&type=chunk) [Tax Risks](index=31&type=section&id=Tax%20Risks) Tax risks primarily involve the potential failure to qualify as a REIT, which would result in corporate income tax and reduced distributions, alongside complex ongoing compliance and potential IRS challenges to instrument tax treatment - **Failure to qualify as a REIT** would subject the company to U.S. federal income tax, reducing cash for distributions, and preventing re-election of REIT status for **five years**[192](index=192&type=chunk)[194](index=194&type=chunk) - The **REIT distribution requirement** (at least **90% of taxable income**) could force asset liquidation, unfavorable borrowing, or taxable stock distributions, hindering growth[200](index=200&type=chunk)[202](index=202&type=chunk) - The IRS could challenge the characterization of **repurchase agreements** as secured borrowings; if treated as sales, the company could fail REIT qualification[208](index=208&type=chunk) - The tax treatment of **To-Be-Announced (TBA) securities** for REIT tests is based on counsel's opinion and is not binding on the IRS; a challenge could jeopardize REIT status[225](index=225&type=chunk) [Unresolved Staff Comments, Properties, Legal Proceedings, and Mine Safety Disclosures](index=37&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved SEC staff comments, no material legal proceedings as of December 31, 2022, and mine safety disclosures are not applicable - The company has **no unresolved staff comments**[238](index=238&type=chunk) - The company was not involved in any **material legal proceedings** as of December 31, 2022[240](index=240&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE, with quarterly dividends intended to maintain REIT status; in 2022, preferred shares were repurchased, and common stock underperformed market indices over five years - The company's common stock trades on the NYSE under **"IVR"**, with quarterly dividends intended to distribute substantially all taxable income[243](index=243&type=chunk) 5-Year Cumulative Total Return Comparison | Index | 12/31/2017 | 12/31/2022 | | :--- | :--- | :--- | | Invesco Mortgage Capital Inc. | $100.00 | $14.46 | | S&P 500 | $100.00 | $156.88 | | FTSE NAREIT Mortgage REITs | $100.00 | $81.53 | - As of December 31, 2022, **1,816,398 common shares** were available for repurchase, though none were repurchased in Q4 2022[251](index=251&type=chunk) - A May 2022 board-approved program allowed repurchase of **1,337,634 Series B** and **1,316,470 Series C preferred shares** as of December 31, 2022, with no Q4 2022 repurchases[252](index=252&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=40&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, aggressive Federal Reserve policy led to sharply higher interest rates, causing a **56% decrease in book value** and a **net loss of $417.0 million** for common stockholders, despite portfolio repositioning and derivative gains [Market Conditions and Investment Activities](index=40&type=section&id=Market%20Conditions%20and%20Investment%20Activities) In 2022, aggressive Fed rate hikes and the end of RMBS purchases caused severe market underperformance, leading the company to reduce its portfolio from **$9.5 billion to $4.8 billion** and shift to higher-coupon Agency RMBS - In 2022, the Federal Reserve increased the Federal Funds target rate by **425 basis points**, leading to an inverted yield curve, interest rate volatility, and reduced demand for Agency RMBS as net purchases concluded[258](index=258&type=chunk) Investment Portfolio Summary ($ in thousands) | Investment Type | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Agency RMBS | $4,746,693 | $7,732,280 | | Non-Agency CMBS | $36,787 | $62,909 | | Non-Agency RMBS | $8,413 | $9,070 | | TBAs (implied cost basis) | $1,437 | $1,636,906 | | **Total Investment Portfolio** | **$4,793,882** | **$9,477,156** | - The company significantly shifted its Agency RMBS portfolio from **2.0%-3.5% coupons** at year-end 2021 to **4.5%-5.5% coupons** by year-end 2022[266](index=266&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) In 2022, the company reported a **net loss of $402.9 million** and a **net loss attributable to common stockholders of $417.0 million**, driven by **$1.1 billion in investment losses** partially offset by **$559.0 million in derivative gains** Consolidated Results of Operations Summary ($ in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | $142,953 | $180,492 | | Gain (loss) on investments, net | ($1,079,339) | ($366,509) | | Gain (loss) on derivative instruments, net | $559,007 | $122,611 | | **Net Income (Loss)** | **($402,924)** | **($90,000)** | | **Net Income (Loss) Attributable to Common Stockholders** | **($416,963)** | **($132,477)** | | **Basic EPS** | **($12.21)** | **($4.82)** | - **Book value per common share decreased by 56%** in 2022, from **$29.09 to $12.79**, primarily due to interest rate volatility impacting Agency RMBS valuations[284](index=284&type=chunk) - A **one-for-ten reverse stock split** was effected on June 3, 2022, with all per-share amounts retroactively adjusted[282](index=282&type=chunk) [Non-GAAP Financial Measures](index=57&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like EAD and Economic Debt-to-Equity Ratio; in 2022, **EAD increased to $185.0 million**, and the **economic debt-to-equity ratio decreased to 5.3x** Reconciliation to Earnings Available for Distribution (EAD) | $ in thousands, except per share data | 2022 | 2021 | | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders | ($416,963) | ($132,477) | | Adjustments (net) | $601,974 | $246,152 | | **Earnings available for distribution** | **$185,011** | **$113,675** | | **EAD per common share** | **$5.42** | **$4.13** | Economic Debt-to-Equity Ratio | As of | Repurchase Agreements ($M) | TBAs at Implied Cost Basis ($M) | Total Stockholders' Equity ($M) | Economic Debt-to-Equity Ratio | | :--- | :--- | :--- | :--- | :--- | | Dec 31, 2022 | $4,234.8 | $1.4 | $804.1 | 5.3x | | Dec 31, 2021 | $6,987.8 | $1,636.9 | $1,402.1 | 6.2x | [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity sources include equity offerings, operations, and repurchase agreements; as of December 31, 2022, it held **$278.8 million in cash** and **$352.9 million in unencumbered investments**, with an average **4.6% haircut** on Agency RMBS repurchase agreements - As of December 31, 2022, the company held **$278.8 million in cash** and restricted cash, plus approximately **$352.9 million in unencumbered investments** for liquidity[396](index=396&type=chunk)[408](index=408&type=chunk) - The average margin requirement, or **"haircut,"** on Agency RMBS repurchase agreements was **4.6%** as of December 31, 2022[403](index=403&type=chunk) - As of December 31, 2022, the company had **17 repurchase agreement counterparties**, with no single counterparty holding collateral exceeding **$40.2 million** or **5% of stockholders' equity** above borrowed amounts[416](index=416&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=67&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risks include interest rate, spread, prepayment, and credit risks, managed through asset selection, leverage, and derivatives; a **100 basis point rate increase** would decrease portfolio value by **1.15%** and net interest income by **2.97%** Interest Rate Sensitivity Analysis (as of Dec 31, 2022) | Change in Interest Rates | Percentage Change in Projected Net Interest Income | Percentage Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | (2.97)% | (1.15)% | | +0.50% | (1.54)% | (0.48)% | | -0.50% | 1.56 % | 0.22 % | | -1.00% | 2.90 % | 0.13 % | - The company's primary market risks include **interest rate, spread, prepayment, extension, and credit risks** on its mortgage investments[421](index=421&type=chunk)[429](index=429&type=chunk)[431](index=431&type=chunk)[433](index=433&type=chunk) - The company manages risk by monitoring financing agreements, using **hedging instruments** like interest rate swaps, and actively managing asset and liability interest rate characteristics[446](index=446&type=chunk) [Controls and Procedures](index=70&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were **effective** as of December 31, 2022, with the independent auditor issuing an **unqualified opinion** - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2022[448](index=448&type=chunk) - Based on the COSO framework, management concluded that **internal control over financial reporting was effective** as of December 31, 2022[451](index=451&type=chunk) - PricewaterhouseCoopers LLP issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[452](index=452&type=chunk) Part III [Directors, Executive Compensation, and Other Matters](index=72&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive compensation, security ownership, related transactions, and accounting fees, is incorporated by reference from the forthcoming 2023 proxy statement - Information for **Items 10-14** (Directors, Executive Compensation, Security Ownership, Related Transactions, and Accounting Fees) is incorporated by reference from the forthcoming proxy statement[458](index=458&type=chunk)[460](index=460&type=chunk)[461](index=461&type=chunk)[462](index=462&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=72&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section includes the audited consolidated financial statements for 2022, with PricewaterhouseCoopers LLP issuing an **unqualified opinion** on financials and internal controls, identifying MBS valuation as a **critical audit matter** - PricewaterhouseCoopers LLP issued an **unqualified opinion** on the consolidated financial statements and internal control over financial reporting as of December 31, 2022[481](index=481&type=chunk) - The auditor identified the valuation of **mortgage-backed securities ($4.8 billion)** as a **critical audit matter** due to the high degree of effort and judgment required for fair value evaluation[488](index=488&type=chunk)[489](index=489&type=chunk) Consolidated Balance Sheet Highlights ($ in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $5,097,395 | $8,443,841 | | Total Liabilities | $4,293,320 | $7,041,706 | | **Total Stockholders' Equity** | **$804,075** | **$1,402,135** | Key Stockholders' Equity Events in 2022 | Event | Details | | :--- | :--- | | **Reverse Stock Split** | A one-for-ten reverse split of common stock was effected on June 3, 2022. | | **Preferred Stock Repurchase** | Repurchased and retired 1,662,366 shares of Series B and 3,683,530 shares of Series C preferred stock, resulting in a $14.2 million gain. | | **Common Stock Issuance** | Sold 5,686,598 shares of common stock via at-the-market offerings for net proceeds of $81.6 million. | | **Dividends Declared (Common)** | Declared total dividends of $3.10 per share on common stock. |

Invesco Mortgage Capital, Inc. (NYSE:IVR) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET Company Participants Matthew Seitz - IR John Anzalone - CEO Brian Norris - CIO Conference Call Participants Douglas Harter - Crédit Suisse Trevor Cranston - JMP Securities Jason Stewart - JonesTrading Operator Welcome to Invesco Mortgage Capital Inc's. Third Quarter 2022 Investor Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. Now I would like to turn the call over to ...