Invesco Mortgage Capital (IVR) - 2020 Q4 - Annual Report

Part I Business Invesco Mortgage Capital Inc. is a mortgage REIT externally managed by Invesco Advisers, Inc., focused on providing risk-adjusted returns through investments in mortgage-backed securities and other mortgage-related assets. - The company is a mortgage REIT focused on providing returns to stockholders primarily through dividends by investing in mortgage-related assets[17] - Due to unprecedented market conditions from the COVID-19 pandemic in the first half of 2020, the company sold a substantial portion of its MBS and GSE CRT portfolio to generate liquidity and reduce leverage[19] - Following the portfolio restructuring, the company has largely completed its reallocation, with approximately 98% of its investment portfolio (excluding TBAs) invested in Agency RMBS by year-end 2020[19] - The company is externally managed by Invesco Advisers, Inc., an indirect wholly-owned subsidiary of Invesco Ltd., and has no employees of its own[17][20] Target Asset Classes | Asset Class | Description | | :--- | :--- | | Agency RMBS | Residential MBS guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac | | Agency CMBS | Commercial MBS guaranteed by a U.S. government agency or federally chartered corporation | | Non-Agency RMBS/CMBS | Residential or Commercial MBS not guaranteed by a U.S. government agency | | GSE CRT | Unsecured credit risk transfer securities issued by government-sponsored enterprises | | TBAs | To-be-announced forward contracts to purchase Agency RMBS | | Mortgage Loans | Residential and commercial mortgage loans | Risk Factors The company faces a multitude of risks, including market volatility, liquidity challenges, and margin calls, exacerbated by the COVID-19 pandemic, alongside investment, financing, hedging, and external management structure risks. - The COVID-19 pandemic has adversely affected the U.S. economy and the mortgage REIT industry, causing severe volatility, forced asset sales, and higher-than-historical levels of margin calls[74][75] - The company's reliance on short-term repurchase agreements for financing creates significant risk, as market volatility can lead to margin calls, forcing asset sales at depressed prices to maintain liquidity[81][82] - The planned discontinuation of LIBOR after 2021 presents a significant risk, as many of the company's investments, financing agreements, and preferred stock dividends are indexed to LIBOR, potentially affecting asset values, interest income/expense, and hedging effectiveness[115][116] - The company's external management structure creates potential conflicts of interest, as the Manager and its affiliates manage other funds and accounts that may compete for the same investment opportunities[176][177] - Failure to maintain qualification as a REIT would subject the company to corporate income tax, significantly reducing cash available for distribution to stockholders, requiring ongoing compliance with complex asset, income, and distribution tests[199][201] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission. - As of the report date, there are no unresolved staff comments[247] Properties The company's principal executive office is located in Atlanta, Georgia, with office space and services provided by the Manager as part of the management agreement. - The company's principal executive office is located at 1555 Peachtree Street, NE, Suite 1800, Atlanta, Georgia 30309[248] - Office space is provided by the Manager under the management agreement[248] Legal Proceedings As of December 31, 2020, the company was not involved in any material legal proceedings arising outside the ordinary course of business. - The company was not involved in any material legal proceedings as of December 31, 2020[249] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under the symbol "IVR", and a performance graph shows a significant decline in its cumulative total return in 2020 compared to relevant indices. - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "IVR"[252] 5-Year Cumulative Total Return Comparison | Index | 12/31/2015 | 12/31/2019 | 12/31/2020 | | :--- | :--- | :--- | :--- | | Invesco Mortgage Capital Inc. | $100.00 | $207.29 | $50.57 | | S&P 500 | $100.00 | $171.49 | $203.04 | | FTSE NAREIT Mortgage REITs | $100.00 | $174.05 | $141.38 | - As of December 31, 2020, 18,163,982 common shares were available for repurchase under the company's share repurchase program, with no shares repurchased in the quarter ended December 31, 2020[258] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, the company's financial condition and operations were severely impacted by the COVID-19 pandemic, leading to a net loss of $1.7 billion and a significant drop in book value per share, as the portfolio was repositioned to be 98% invested in Agency RMBS. - In response to the COVID-19 pandemic and resulting margin calls in March 2020, the company sold a substantial portion of its portfolio to generate liquidity and reduce leverage[265] - The company resumed investing in July 2020, reallocating its portfolio to be approximately 98% invested in Agency RMBS by year-end[266] Key Financial Results (Years Ended Dec 31) | Metric ($ in thousands, except per share) | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income | $197,904 | $306,047 | | Gain (Loss) on Investments, net | ($961,938) | $624,466 | | Gain (Loss) on Derivative Instruments, net | ($851,050) | ($534,755) | | Net (Loss) Income Attributable to Common Stockholders | ($1,718,778) | $319,675 | | (Loss) Earnings Per Share (Diluted) | ($9.89) | $2.42 | Book Value Per Common Share | Date | Book Value Per Share | | :--- | :--- | | Dec 31, 2019 | $16.29 | | Dec 31, 2020 | $3.86 | - The company's economic debt-to-equity ratio, a non-GAAP measure that includes off-balance sheet TBA financing, was 6.6x as of December 31, 2020[407][410] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include interest rate, prepayment, spread, and market value risks, which are managed through asset selection, liability management, and derivatives, though the COVID-19 pandemic has heightened these risks. - The company's main market risks include interest rate, principal prepayment, market value, spread, real estate, and credit risk[447][455][457][461][467][468] - The company uses derivative contracts, primarily interest rate swaps, to mitigate interest rate risk associated with its short-term repurchase agreement financing[449] Interest Rate Sensitivity Analysis (as of Dec 31, 2020) | Change in Interest Rates | Percentage Change in Projected Net Interest Income | Percentage Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | 29.73% | (1.91)% | | +0.50% | 20.76% | (0.61)% | | -0.50% | (23.01)% | (0.73)% | | -1.00% | (46.95)% | (1.59)% | - The COVID-19 pandemic has exacerbated market risks, causing significant credit spread widening and making it more difficult to predict prepayment levels[456][458] Financial Statements and Supplementary Data This section indicates that the company's audited consolidated financial statements and supplementary data are included under Item 15 of the report. - The financial statements and supplementary data are included under Item 15 of this Form 10-K[472] 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. - There were no disagreements with accountants on accounting and financial disclosure[473] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, a conclusion affirmed by the independent auditor. - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[474] - Management assessed internal control over financial reporting using the COSO framework and concluded it was effective as of December 31, 2020[477] - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[478] Part III Directors, Executive Officers and Corporate Governance Information required by this item concerning directors, executive officers, and corporate governance will be provided in the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference into this report. - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's forthcoming proxy statement[483] Executive Compensation Information required by this item concerning executive compensation will be provided in the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference into this report. - Information regarding executive compensation is incorporated by reference from the company's forthcoming proxy statement[485] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item concerning security ownership will be provided in the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference into this report. - Information regarding security ownership is incorporated by reference from the company's forthcoming proxy statement[486] Certain Relationships and Related Transactions, and Director Independence Information required by this item concerning certain relationships, related transactions, and director independence will be provided in the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference into this report. - Information regarding related party transactions and director independence is incorporated by reference from the company's forthcoming proxy statement[487] Principal Accounting Fees and Services Information required by this item concerning principal accounting fees and services will be provided in the company's definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference into this report. - Information regarding principal accounting fees and services is incorporated by reference from the company's forthcoming proxy statement[488] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report. - This item lists all exhibits and financial statement schedules filed with the report, with financial statements located on pages 78-114[490]