IVR-PC · Invesco Mortgage Capital Inc.

Management attributes the decline in effective net interest rate margin to two interrelated factors: lower average earning asset yields and reduced contractual net interest income on interest rate swaps. These pressures were partially offset by a lower cost of funds, suggesting active balance sheet management amid shifting rate dynamics. Notably, earnings available for distribution increased year-over-year, supported by higher effective net interest income and an expanded allocation to To-Be-Announced (TBA) securities — a strategic adjustment intended to enhance financing efficiency.

Liquidity remains a focal point of management’s assessment. The company affirms it has sufficient liquidity and capital resources to fund new investments, repay borrowings, satisfy margin requirements, and pay dividends required for REIT qualification. However, management explicitly notes that liquidity is sensitive to changes in haircuts — if haircuts increase, available liquidity decreases proportionately. This linkage underscores the operational risk embedded in the firm’s reliance on repurchase agreement financing. The company also emphasizes its practice of maintaining liquidity to opportunistically pay down borrowings and manage long-term investment capital efficiently.

The decrease in book value per common share was primarily driven by unrealized losses on investments, dividends declared, and expenses — partially offset by net interest income and gains on derivative instruments. This explanation anchors the financial outcome in observable market conditions and internal capital allocation decisions, rather than isolated transactional events. Management does not provide forward-looking guidance on rates or spreads but reaffirms its use of effective interest metrics — including effective cost of funds and effective net interest income — as meaningful complements to GAAP measures when evaluating performance and risk.