Invesco Mortgage Capital (US:IVR)2024-11-05 22:17PART I FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited condensed consolidated financial statements for the periods ended September 30, 2024 Condensed Consolidated Balance Sheets Total assets grew to $6.08 billion, driven by an increase in mortgage-backed securities and repurchase agreements Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $6,082,230 | $5,284,209 | | Mortgage-backed securities, at fair value | $5,873,696 | $5,045,306 | | Cash and cash equivalents | $48,254 | $76,967 | | Total Liabilities | $5,225,227 | $4,501,544 | | Repurchase agreements | $5,184,885 | $4,458,695 | | Total Stockholders' Equity | $857,003 | $782,665 | Condensed Consolidated Statements of Operations The company reported a Q3 2024 net income of $40.7 million, a significant turnaround from a loss in Q3 2023 Statements of Operations Highlights (in thousands) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $7,510 | $9,431 | $23,148 | $41,398 | | Gain (loss) on investments, net | $165,168 | $(224,897) | $53,803 | $(272,620) | | Gain (loss) on derivative instruments, net | $(127,345) | $151,689 | $(5,922) | $203,418 | | Net Income (Loss) | $40,720 | $(68,599) | $56,376 | $(43,058) | | Net Income (Loss) Attributable to Common Stockholders | $35,271 | $(74,024) | $40,235 | $(59,821) | | Diluted EPS | $0.63 | $(1.62) | $0.78 | $(1.40) | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q3 2024 was $40.4 million, reversing a comprehensive loss of $70.5 million in Q3 2023 Comprehensive Income (Loss) Highlights (in thousands) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $40,720 | $(68,599) | $56,376 | $(43,058) | | Total other comprehensive income (loss) | $(287) | $(1,858) | $(337) | $(9,878) | | Comprehensive Income (Loss) | $40,433 | $(70,457) | $56,039 | $(52,936) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $857.0 million, primarily due to net income and common stock issuance - Key drivers for the change in stockholders' equity during the first nine months of 2024 include net income, issuance of common stock, and payment of dividends13 Roll-forward of Total Stockholders' Equity YTD 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance as of Dec 31, 2023 | $782,665 | | Net income | $56,376 | | Other comprehensive loss | $(337) | | Proceeds from issuance of common stock, net | $108,062 | | Repurchase and retirement of preferred stock | $(9,389) | | Common stock dividends | $(64,077) | | Preferred stock dividends | $(16,567) | | Balance as of Sep 30, 2024 | $857,003 | Condensed Consolidated Statements of Cash Flows A net decrease in cash of $30.2 million resulted from significant investing outflows offset by financing inflows Cash Flow Highlights YTD 2024 vs YTD 2023 (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $121,305 | $206,115 | | Net cash used in investing activities | $(898,788) | $(899,785) | | Net cash provided by financing activities | $747,299 | $774,634 | | Net change in cash, cash equivalents and restricted cash | $(30,184) | $80,964 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies and specifics on the company's MBS portfolio, financing, and derivatives - The company primarily invests in, finances, and manages mortgage-backed securities (MBS), with a focus on Agency RMBS and Agency CMBS19 - As of September 30, 2024, approximately 99.7% of the company's MBS portfolio was accounted for under the fair value option30 - The company finances the majority of its investment portfolio through repurchase agreements, which totaled $5.18 billion as of September 30, 202452 - On November 5, 2024, the company announced its intention to redeem all outstanding shares of its Series B Preferred Stock on December 27, 202491107 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting market impacts on its investment and financing strategies - Macroeconomic factors, particularly inflation, employment, and monetary policy, significantly impacted performance in Q3 2024, leading to a 50 basis point reduction in the Federal Funds target rate in September114 - Agency RMBS outperformed Treasuries during Q3 2024 due to lower interest rate volatility and strong demand, and the company is constructive on both Agency RMBS and Agency CMBS sectors114117 - The company's book value per common share decreased by 6.3% from $10.00 at year-end 2023 to $9.37 as of September 30, 2024134 Key Financial Metrics | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Investment Portfolio | $5,873.7M | $5,057.0M | | Repurchase Agreements | $5,184.9M | $4,458.7M | | Book Value per Common Share | $9.37 | $10.00 | | Debt-to-Equity Ratio | 6.1x | 5.7x | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate, prepayment, and market value risks through hedging and asset selection - The company's main market risks include interest rate, prepayment, spread, and market value risk, which are managed through asset selection, hedging with derivatives, and maintaining liquidity213218226 Interest Rate Sensitivity Analysis (as of Sep 30, 2024) | Change in Interest Rates | % Change in Projected Net Interest Income | % Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | (2.68)% | (0.93)% | | +0.50% | (1.11)% | (0.30)% | | -0.50% | 0.91% | (0.08)% | | -1.00% | 2.08% | (0.59)% | Item 4. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period229 - No material changes in internal control over financial reporting occurred during the quarter230 PART II OTHER INFORMATION Item 1. Legal Proceedings The company was not involved in any material legal proceedings during the reporting period - The company reports no involvement in any material legal proceedings as of September 30, 2024232 Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the company's Annual Report - No material changes to risk factors were reported for the period covered by this Quarterly Report233 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 66,507 shares of its Series C Preferred Stock during the third quarter of 2024 Series C Preferred Stock Repurchases in Q3 2024 | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2024 | 23,245 | $22.94 | | August 2024 | 28,615 | $24.04 | | September 2024 | 14,647 | $24.64 | | Total | 66,507 | $23.80 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None236 Item 5. Other Information The company reported no other information for the period - None237 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q - A list of exhibits filed with the Form 10-Q is set forth on the Exhibit Index238