Invesco Mortgage Capital (IVR) - 2023 Q4 - Annual Report

Part I Item 1. Business Invesco Mortgage Capital Inc. is a Maryland REIT externally managed by Invesco Advisers, Inc., investing in MBS and using repurchase agreements for financing - The company is a REIT externally managed by Invesco Advisers, Inc., with no employees of its own[17][19] Investment Portfolio as of December 31, 2023 | Asset Class | Description | | :--- | :--- | | Agency RMBS | Residential MBS guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac | | Non-Agency CMBS | Commercial MBS not guaranteed by a U.S. government agency | | Non-Agency RMBS | Residential MBS not guaranteed by a U.S. government agency | | U.S. Treasury securities | Debt securities issued by the U.S. Department of the Treasury | | Other | Includes a real estate-related financing arrangement | - The company's primary financing strategy relies on short-term repurchase agreements, with interest rates closely tied to the Secured Overnight Financing Rate (SOFR)[42][44] - Risk management is a core component of the strategy, utilizing derivative instruments like interest rate swaps, futures, and U.S. Treasury securities to mitigate interest rate, spread, and credit risks[47][48][52] Item 1A. Risk Factors The company faces diverse risks including investment, financing, business, and tax-related challenges, particularly concerning interest rates, repurchase agreements, and REIT qualification - Investment risks are significant, including adverse effects from Federal Reserve actions in the Agency RMBS market, interest rate fluctuations impacting asset values and borrowing costs, and prepayment rates affecting portfolio value[71][78][89] - The company is heavily dependent on repurchase agreement financing. An inability to access this funding, potential margin calls from declining asset values, or counterparty defaults could materially harm the business[111][114][118] - Hedging strategies may not be fully effective and could adversely affect earnings due to mismatches in duration, counterparty default, or high costs during volatile periods[124] - The business is highly dependent on its external Manager, Invesco Advisers, Inc., and its key personnel. Conflicts of interest exist as the Manager allocates investments among various clients, which may not always favor the company[154][155] - Failure to maintain qualification as a REIT would result in being taxed as a regular corporation, leading to a substantial tax liability and a significant reduction in cash available for distribution to stockholders[179] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[229] Item 1C. Cybersecurity As an externally managed company, IVR relies on its Manager's comprehensive cybersecurity program, with Board oversight and no material incidents reported - The company relies on its Manager's cybersecurity program, which includes proactive testing, third-party risk management, incident response, and employee training[230][232] - The Board of Directors provides oversight, receiving updates at least semi-annually from the Manager's Chief Information Security Officer[233] - As of December 31, 2023, no cyber incidents have materially affected the company's business, operations, or financial condition[234] Item 2. Properties The company's principal executive office is in Atlanta, Georgia, with space and services provided by its Manager - The principal executive office is located at 1331 Spring Street, N.W., Suite 2500, Atlanta, Georgia 30309. Office space is provided by the Manager[235] Item 3. Legal Proceedings As of December 31, 2023, the company was not involved in any material legal proceedings - As of December 31, 2023, the company was not involved in any legal proceedings[236] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[237] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE, pays quarterly dividends for REIT status, and has active preferred stock repurchase programs - As of December 31, 2023, 1,816,398 shares of common stock were available for repurchase under the company's program. No common stock was repurchased in Q4 2023[247] Preferred Stock Repurchases (Q4 2023) | Series | Shares Repurchased (Q4 2023) | Average Price Paid Per Share | | :--- | :--- | :--- | | Series B | 79,417 | $21.79 | | Series C | 135,772 | $19.98 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, macroeconomic factors led to a 22% decline in book value, a net loss, and decreased net interest income, despite portfolio concentration in Agency RMBS - The book value per common share decreased by 22% during 2023, from $12.79 to $10.00. Including dividends, the economic return for the year was (9.3)%[258][280] Investment Portfolio Summary (in thousands) | Investment Type | Dec 31, 2023 (Fair Value, in thousands) | Dec 31, 2022 (Fair Value, in thousands) | | :--- | :--- | :--- | | Agency RMBS | $5,027,232 | $4,746,693 | | Non-Agency CMBS | $9,935 | $36,787 | | Non-Agency RMBS | $8,139 | $8,413 | | U.S. Treasury securities | $11,214 | $— | | Total Investment Portfolio | $5,057,020 | $4,792,445 | Key Financial Results (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $49,700 | $142,953 | | Net Loss Attributable to Common Stockholders | ($37,541) | ($416,963) | | Earnings Available for Distribution (Non-GAAP) | $235,796 | $185,011 | - The economic debt-to-equity ratio, a non-GAAP measure including off-balance sheet TBA financing, was 5.7x at year-end 2023, up from 5.3x at year-end 2022[358][359][365] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company manages primary market risks like interest rate and prepayment risk through portfolio adjustments and derivatives, with sensitivity analysis showing impact on value and income - The company is exposed to significant market risks, including interest rate, prepayment, extension, market value, real estate, and credit risk[391][401][403] Interest Rate Sensitivity Analysis as of December 31, 2023 | Change in Interest Rates | Percentage Change in Projected Net Interest Income | Percentage Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | (1.04)% | (0.76)% | | +0.50% | (0.41)% | (0.23)% | | -0.50% | 0.27% | (0.13)% | | -1.00% | 0.93% | (0.68)% | - Risk management strategies include monitoring asset and financing characteristics, using a range of financing maturities, and employing hedging instruments like interest rate swaps to manage interest rate sensitivity[413] Item 8. Financial Statements and Supplementary Data The company's financial statements and supplementary data are included under Item 15 of this report - The financial statements and supplementary data are included under Item 15 of this Report[413] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[414] Item 9A. Controls and Procedures Management concluded disclosure controls and internal controls over financial reporting were effective, with an unqualified auditor opinion - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[415] - Management assessed internal control over financial reporting as effective as of December 31, 2023, based on the COSO framework[418] - The independent registered public accounting firm, PricewaterhouseCoopers LLP, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[419] Item 9B. Other Information The company reports no other information for this item - None[421] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the registrant's proxy statement for the 2024 Annual Meeting of Stockholders[7][424] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the registrant's proxy statement for the 2024 Annual Meeting of Stockholders[7][426] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the registrant's proxy statement for the 2024 Annual Meeting of Stockholders[7][427] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the registrant's proxy statement for the 2024 Annual Meeting of Stockholders[7][428] Item 14. Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the registrant's proxy statement for the 2024 Annual Meeting of Stockholders[7][429] Part IV Item 15. Exhibits, Financial Statement Schedules This section includes audited consolidated financial statements, the independent auditor's report, financial schedules, and a list of exhibits - This item includes the audited financial statements, financial statement schedules, and exhibits for the reporting period[431] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on financial statements and internal controls, identifying MBS valuation as a critical audit matter - The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements and internal controls[447] - A critical audit matter was identified as the valuation of mortgage-backed securities at fair value, which required significant auditor judgment and effort[453][455] Consolidated Financial Statements The consolidated financial statements show total assets of $5.3 billion, liabilities of $4.5 billion, equity of $782.7 million, and a net loss of $15.9 million for 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $5,284,209 | $5,097,395 | | Total Liabilities | $4,501,544 | $4,293,320 | | Total Stockholders' Equity | $782,665 | $804,075 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $49,700 | $142,953 | | Net Loss | ($15,859) | ($402,924) | | Net Loss Attributable to Common Stockholders | ($37,541) | ($416,963) | | Basic Loss Per Share | ($0.85) | ($12.21) | Item 16. Form 10-K Summary This item is not applicable to the company - Not applicable[432]