What changed in this filing

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Item 1. Business

2021-02-22 compared with 2020-02-19 · 39 added, 27 removed, 234 unchanged (22% of the section changed)

Invesco Mortgage Capital Inc.

(the “Company”) is a Maryland corporation primarily focused on investing in, financing, and managing residential and commercial mortgage-backed securities (“MBS”) and other mortgage related assets.

(the “Company”) is a Maryland corporation primarily focused on investing in, financing, and managing mortgage-backed securities (“MBS”) and other mortgage-related assets.

Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.

To achieve this objective, we primarily invest in the following:

To achieve this objective, we have invested in the following:

• Residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S.

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• Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises (“GSE CRT”);

• To-be-announced securities forward contracts ("TBAs") to purchase Agency RMBS;

• Residential and commercial mortgage loans;

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We operate our business in a manner that permits our exclusion from the definition of an “Investment Company” under the 1940 Act.

As a result of unprecedented market conditions associated with the COVID-19 pandemic, we sold a substantial portion of our MBS and GSE CRT portfolio in the first half of 2020 to generate liquidity and reduce leverage.

During the third quarter of 2020, we resumed purchasing Agency RMBS and began investing in TBAs as an alternative means of investing in and financing Agency RMBS.

We have largely completed our portfolio reallocation to Agency RMBS with approximately 98% of our investment portfolio, excluding TBAs, invested in Agency RMBS at year end.

For a detailed discussion of the impact that the market disruption caused by the COVID-19 pandemic had on our financial condition and results of operations, refer to Item 7.

“Management's Discussion of Financial Condition and Results of Operations” in Part II of this Report.

Our Manager provides us with our management team, including our officers and appropriate support personnel.

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We do not have any employees.

Our Manager is not obligated to dedicate any of its employees exclusively to us, and our Manager and its employees are not obligated to dedicate any specific portion of time to our business.

Our Manager's long-term success, including its success in managing our business, relies on its ability to attract, develop and retain talent.

Our Manager invests significantly in talent development, health and welfare programs, technology and other resources that support its employees.

Our Manager is committed to improving diversity at all levels and in all functions across its global business and remains focused on increasing representation of women and other underrepresented employees.

Our Manager is not obligated to dedicate any of its employees exclusively to us, and our Manager and its employees are not obliga ted to dedicate any specific portion of time to our business.

Our Manager is at all times subject to the supervision and oversight of our Board of Directors and has only such functions and authority as we delegate to it.

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Significant Experience of Our Senior Management and Our Manager

Our senior management and the structured investments team of our Manager has a long track record and broad experience in managing residential and commercial mortgage-related assets through a variety of credit and interest rate environments and has demonstrated the ability to generate attractive risk-adjusted returns under different market conditions and cycles.

Our senior management and the structured investments team of our Manager have a long track record and broad experience in managing residential and commercial mortgage-related assets through a variety of credit and interest rate environments and have demonstrated the ability to generate attractive risk-adjusted returns under different market conditions and cycles.

In addition, we benefit from the insight and capabilities of Invesco’s real estate team, through which we have access to broad and deep teams of experienced investment professionals in real estate and distressed investing.

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Investment Strategy

We invest in a diversified pool of mortgage assets that generate attractive risk-adjusted returns.

Our target assets generally include Agency RMBS, Agency CMBS, non-Agency RMBS, non-Agency CMBS, GSE CRT, residential and commercial mortgage loans and other real estate-related financing arrangements.

We have invested in a diversified pool of mortgage assets that generate attractive risk-adjusted returns.

Our target assets generally include Agency RMBS, Agency CMBS, non-Agency RMBS, non-Agency CMBS, GSE CRT, TBAs, residential and commercial mortgage loans and other real estate-related financing arrangements.

In addition to direct purchases of our target assets, we also invest in ventures managed by an affiliate of our Manager, which, in turn, invest in our target assets.

We accept varying levels of interest rate risk by managing our hedge portfolio and accept credit and spread risk in order to earn income.

We accept varying levels of interest rate risk by managing our hedge portfolio and accept certain levels of credit and spread risk to earn income.

Agency RMBS are residential mortgage-backed securities issued by a U.S.

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Instead, Agency RMBS provide for monthly payments of both principal and interest.

In effect, these payments are a “pass-through” of scheduled and unscheduled principal payments and the monthly interest payments made by the individual borrowers on the mortgage loans, net of any fees paid to the servicers, guarantors or other related parties of the securities.

In effect, these payments are a

“pass-through” of scheduled and unscheduled principal payments and the monthly interest payments made by the individual borrowers on the mortgage loans, net of any fees paid to the servicers, guarantors or other related parties of the securities.

The principal may be prepaid at any time due to prepayments or defaults on the underlying mortgage loans.

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government agency or federally chartered corporation.

Like Agency CMBS, non-Agency CMBS are securities backed by obligations (including certificates of participation in obligations) that are principally secured by commercial mortgages on real property or interests therein having a multifamily or commercial use, such as regional malls, retail space, office buildings, industrial or warehouse properties, hotels, apartments, nursing homes and senior living facilities.

interests therein having a multifamily or commercial use, such as regional malls, retail space, office buildings, industrial or warehouse properties, hotels, apartments, nursing homes and senior living facilities.

Non-Agency CMBS are typically issued in multiple tranches whereby the more senior classes are entitled to priority distributions to make specified interest and principal payments on such tranches.

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government agency or federally chartered corporation underwriting guidelines due to certain factors including mortgage balance in excess of such guidelines, borrower characteristics, loan characteristics and level of documentation.

We invest in securities collateralized by the following types of residential mortgage loans:

We have invested in securities collateralized by the following types of residential mortgage loans:

Prime and Jumbo Prime Mortgage Loans

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Due to past delinquencies, borrowers generally have impaired credit histories and low credit scores, and may have a greater than normal risk of future delinquencies and defaults.

We also invest in non-Agency RMBS structured as re-securitizations of a real estate mortgage investment conduit (“Re-REMIC”).

We have also invested in non-Agency RMBS structured as re-securitizations of a real estate mortgage investment conduit (“Re-REMIC”).

A Re-REMIC is a transaction in which an existing security or securities is transferred to a special purpose entity that has formed a securitization vehicle that has issued multiple classes of securities secured by and payable from cash flows on the underlying securities.

Government-Sponsored Enterprises Credit Risk Transfer Securities

GSE CRTs are unsecured general obligations of the GSEs that are structured to provide credit protection to the issuer with respect to defaults and other credit events within pools of mortgage loans secured by single family properties that collateralize Agency RMBS issued and guaranteed by the GSEs (“Single Family GSE CRT”) or within pools of mortgage loans secured by

multifamily properties that collateralize Agency CMBS issued and guaranteed by the GSEs (“Multifamily GSE CRT”).

GSE CRTs are unsecured general obligations of the GSEs that are structured to provide credit protection to the issuer with respect to defaults and other credit events within pools of mortgage loans secured by single family properties that collateralize Agency RMBS issued and guaranteed by the GSEs or within pools of mortgage loans secured by multifamily properties that collateralize Agency CMBS issued and guaranteed by the GSEs.

This credit protection is achieved by allowing the GSEs to reduce the outstanding class principal balance of the securities as designated credit events on the loans arise.

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To date, all GSE CRTs have paid a floating interest rate benchmarked to one-month LIBOR.

TBAs are forward contracts to purchase or sell Agency RMBS.

TBAs specify the price, issuer, term and coupon of the securities to be delivered, but the actual securities are not identified until shortly before the TBA settlement date.

We generally do not intend to physically settle TBAs that are used for investment purposes.

Commercial Mortgage Loans

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Mortgage servicing rights represent the right to perform and control the servicing of mortgage loans in exchange for a fee.

The loan matures in August 2020 subject to a one year extension at the borrower's option and pays a floating interest rate benchmarked to one-month LIBOR.

Our commitment under the agreement may be funded over the term of the loan based upon the financing needs of the borrower.

We sold our loan participation interest in April 2020.

Unconsolidated Ventures

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Secured Loans

Our wholly-owned captive insurance subsidiary, IAS Services LLC, is a member of the Federal Home Loan Bank of Indianapolis (“FHLBI”).

As a member of the FHLBI, IAS Services LLC has borrowed funds from the FHLBI in the form of secured advances.

FHLBI advances are treated as secured financing transactions and are carried at their contractual amounts.

The Federal Housing Finance Agency’s (“FHFA”) final rule governing Federal Home Loan Bank membership (the “FHFA Rule”) was effective on February 19, 2016.

The FHFA Rule permits existing captive insurance companies, such as IAS Services LLC, to remain members until February 2021.

New advances or renewals that mature after February 2021 are prohibited.

The FHLBI has indicated it will honor the contractual maturity dates of existing advances to IAS Services LLC that were made prior to February 19, 2016 and extend beyond February 2021.

Our wholly-owned captive insurance subsidiary, IAS Services LLC, was a member of the Federal Home Loan Bank of Indianapolis (“FHLBI”).

As a member of the FHLBI, IAS Services LLC borrowed funds from the FHLBI in the form of secured advances.

FHLBI advances were treated as secured financing transactions and carried at their contractual amounts.

We fully repaid our secured loans during the year ended December 31, 2020 and terminated our membership in the FHLBI in the third quarter of 2020.

IAS Services LLC was dissolved in December 2020.

We use leverage on our assets to achieve our return objectives, which are adjusted as our investment and financing opportunities change.

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Assets that are less liquid or exhibit higher price volatility tend to be held unlevered or with lower leverage applied.

We include a table that shows the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our repurchase agreement debt-to-equity ratio (a non-GAAP financial measure of leverage) in Item 7, “Management's Discussion and Analysis of Operations” of this Report.

We include a table that shows the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio (a non-GAAP financial measure of leverage) in Part II.

“Management's Discussion and Analysis of Financial Conditions and Results of Operations” of this Report.

Risk Management Strategy

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“Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Conditions” in Part II of this Report for a discussion of proposed changes to LIBOR.

We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value per diluted common share and our liquidity to help us achieve our investment objectives.

We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value per common share and our liquidity to help us achieve our investment objectives.

We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads.

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We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and maintaining adequate liquidity.

Changes in spreads impact our book value per diluted common share and our liquidity and could cause us to sell assets and to change our investment strategy in order to maintain liquidity and preserve book value per diluted common share.

Changes in spreads impact our book value per common share and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value per common share.

We believe that our investment strategy will generally keep our credit losses and financing costs low.

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We engage in a variety of liquidity management techniques to mitigate the risk of volatility in the marketplace, which may bring significant security price fluctuations, associated margin calls, changing cash needs, and variability in counterparty financing terms.

We perform statistical analysis in order to measure and quantify our required liquidity needs under multiple scenarios and time horizons.

We perform statistical analysis to measure and quantify our required liquidity needs under multiple scenarios and time horizons.

Liquidity in the form of cash, unencumbered assets and future cash inflows is consistently monitored and evaluated versus internal targets.

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Our investment process includes sourcing and screening investment opportunities, assessing investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, reviewing legal structure and servicer and originator information and investment structuring, as appropriate, to ensure an attractive return commensurate with the risk we are bearing.

Upon identification of an investment opportunity, the investment will be screened and monitored by our Manager to determine its impact on maintaining our REIT qualification and our exemption from registration under the 1940 Act.

Upon identification of an investment opportunity, the investment will be screened and monitored

by our Manager to determine its impact on maintaining our REIT qualification and our exemption from registration under the 1940 Act.

We make investments in sectors where our Manager has strong core competencies and where we believe market risk and expected performance can be reasonably quantified.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business