We recognized compensation expense of approximately $129,000 (September 30, 2016: $85,000) and approximately $326,000 (September 30, 2016: $255,000) related to our independent directors for the three and nine months ended September 30, 2017, respectively. During the three months ended September 30, 2017 and 2016, we issued 6,650 shares and 5,448 shares of common stock, respectively, pursuant to the Incentive Plan to our independent directors. Duringfollowing dividends during the nine months ended September 30, ~~2017~~2019 and 2016, we issued 17,398 shares and 19,356 shares of common stock, respectively, pursuant to the Incentive Plan to our independent directors. The fair market value of the shares granted was determined by the closing stock market price on the date of the grant. The grants vested immediately.2018:



$ in thousands, except per share amounts	Dividends Declared
Series A Preferred Stock	Per Share	In Aggregate	Date of Payment
2019
September 16, 2019	0.4844	2,713	October 25, 2019
June 17, 2019	0.4844	2,712	July 25, 2019
March 18, 2019	0.4844	2,713	April 25, 2019
2018
September 14, 2018	0.4844	2,713	October 25, 2018
June 15, 2018	0.4844	2,712	July 25, 2018
March 15, 2018	0.4844	2,713	April 25, 2018

We recognized compensation expense of approximately $33,000 (September 30, 2016: $75,000) and $99,000 (September 30, 2016: $170,000) for the three and nine months ended September 30, 2017, respectively,related to restricted stock units awarded to employees of our Manager and its affiliates which is reimbursed by our Manager under the management agreement. At September 30, 2017 there was approximately $263,000 of total unrecognized compensation cost related to restricted stock unit awards that is expected to be recognized over a period of up to 42 months, with a weighted-average remaining vesting period of 17 months.



$ in thousands, except per share amounts	Dividends Declared
Series B Preferred Stock	Per Share	In Aggregate	Date of Payment
2019
August 1, 2019	0.4844	3,003	September 27, 2019
May 3, 2019	0.4844	3,004	June 27, 2019
February 14, 2019	0.4844	3,003	March 27, 2019
2018
August 2, 2018	0.4844	3,003	September 27, 2018
May 2, 2018	0.4844	3,004	June 27, 2018
February 15, 2018	0.4844	3,003	March 27, 2018

~~The following table summarizes the activity related to restricted stock units awarded to employees of our Manager and its affiliates for the three and nine months ended September 30, 2017.~~



$ in thousands, except per share amounts	Dividends Declared
Series C Preferred Stock	Per Share	In Aggregate	Date of Payment
2019
August 1, 2019	0.46875	5,391	September 27, 2019
May 3, 2019	0.46875	5,390	June 27, 2019
February 14, 2019	0.46875	5,391	March 27, 2019
2018
August 2, 2018	0.46875	5,391	September 27, 2018
May 2, 2018	0.46875	5,390	June 27, 2018
February 15, 2018	0.46875	5,391	March 27, 2018



$ in thousands, except per share amounts	Dividends Declared
Common Stock	Per Share	In Aggregate	Date of Payment
2019
September 16, 2019	0.45	64,261	October 28, 2019
June 17, 2019	0.45	57,958	July 26, 2019
March 18, 2019	0.45	57,720	April 26, 2019
2018
September 14, 2018	0.42	46,895	October 26, 2018
June 15, 2018	0.42	46,890	July 26, 2018
March 15, 2018	0.42	46,887	April 26, 2018

Three Months Ended September 30, Nine Months Ended September 30,
2017 2017
Restricted Stock Units
Weighted Average Grant Date Fair Value ⁽¹⁾
Restricted Stock Units
Weighted Average Grant Date Fair Value ⁽¹⁾
Unvested at the beginning of the period 19,827
$ 14.35
18,807
$ 14.37
Shares granted during the period —
—
8,115
15.55
Shares vested during the period —
—
(7,095 ) 15.78
Unvested at the end of the period 19,827
$ 14.35
19,827
$ 14.35


~~(1)~~	~~The grant date fair value of restricted stock awards is based on the closing market price of our common stock at the grant date.~~

~~Dividends~~

~~On September 14, 2017, we declared the following dividends:~~

~~a dividend of $0.41 per share of common stock to be paid on October 26, 2017 to stockholders of record as of the close of business on September 27, 2017;~~

~~a dividend of $0.4844 per share of Series A Preferred Stock to be paid on October 25, 2017 to stockholders of record as of the close of business on October 1, 2017;~~

~~a dividend of $0.4844 per share of Series B Preferred Stock to be paid on December 27, 2017 to stockholders of record as of the close of business on December 5, 2017; and~~

~~a dividend of $0.6823 per share of Series C Preferred Stock to be paid on December 27, 2017 to stockholders of record as of the close of business on December 5, 2017.~~



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Note 1413 – Earnings per Common Share

Earnings per share for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 is computed as follows:



	Three Months Ended September 30,			Nine Months Ended September 30,
In thousands except per share amounts	2019	2018		2019	2018
Numerator (Income)
Basic Earnings:
Net income (loss) available to common stockholders	77,896	(64,480	)	212,809	56,999
Effect of dilutive securities:
Income (loss) allocated to non-controlling interest	—	(681	)	—	1,153
Dilutive net income (loss) available to stockholders	77,896	(65,161	)	212,809	58,152
Denominator (Weighted Average Shares)
Basic Earnings:
Shares available to common stockholders	135,799	111,647		128,574	111,639
Effect of dilutive securities:
Restricted stock awards	13	—		12	16
Non-controlling interest OP units	—	1,425		—	1,425
Dilutive Shares	135,812	113,072		128,586	113,080
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic	0.57	(0.58	)	1.66	0.51
Diluted	0.57	(0.58	)	1.65	0.51

Three Months Ended
September 30, Nine Months Ended
September 30,
In thousands except per share amounts 2017 2016 2017 2016
Numerator (Income)
Basic Earnings:
Net income (loss) available to common stockholders 49,127
129,219
183,091
(38,558 )
Effect of dilutive securities:
Income allocated to exchangeable senior notes 2,724
5,620
11,236
—
Income (loss) allocated to non-controlling interest 800
1,723
2,656
(235 )
Dilutive net income (loss) available to stockholders 52,651
136,562
196,983
(38,793 )
Denominator (Weighted Average Shares)
Basic Earnings:
Shares available to common stockholders 111,614
111,587
111,607
112,101
Effect of dilutive securities:
Restricted stock awards 20
46
20
—
Non-controlling interest OP units 1,425
1,425
1,425
1,425
Exchangeable senior notes 8,166
16,835
11,226
—
Dilutive Shares 121,225
129,893
124,278
113,526
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic 0.44
1.16
1.64
(0.34 )
Diluted 0.43
1.05
1.59
(0.34 )

The following potential common shares were excluded from diluted earnings per share for the nine months ended September 30, 2016 as the effect would be anti-dilutive: 16,835,720 for the exchangeable senior notes and 44,785 for restricted stock awards.

~~Note 15 – Non-controlling Interest - Operating Partnership~~

Non-controlling interest represents the aggregate ownership interest of a wholly-owned Invesco subsidiary in our Operating Partnership. The ownership percentage is determined by dividing the number of OP Units held by the Unit Holders by the total number of dilutive shares of common stock. The issuance or repurchase of common stock ("Share" or "Shares") or OP Units changes the percentage ownership of both the Unit Holders and the common stockholders. Since an OP unit is generally redeemable for cash or Shares at our option, it is deemed to be a Share equivalent. Therefore, such transactions are treated as capital transactions and result in a reallocation between stockholders’ equity and non-controlling interest in the accompanying condensed consolidated balance sheets. As of September 30, 2017 and December 31, 2016, non-controlling interest related to the outstanding 1,425,000 OP Units represented a ~~1.3%~~ interest in the Operating Partnership. During the third quarter of 2017, we recorded a cumulative out-of-period adjustment to rebalance equity in our Operating Partnership. The effect of the entry was to increase additional paid-in capital by $3.6 million and decrease non-controlling interest by $3.6 million. The adjustment did not have any impact on our consolidated statement of operations.

Income allocated to the non-controlling interest is based on the Unit Holders' ownership percentage of the Operating Partnership. The following table presents the net income (loss) allocated and distributions paid to the Operating Partnership non-controlling interest for the three and nine months ended September 30, 2017 and 2016.

Three Months Ended
September 30, Nine Months Ended
September 30,
$ in thousands 2017 2016 2017 2016
Net income (loss) allocated 800
1,723
2,656
(235 )
Distributions paid 570
570
1,710
1,710

~~As of September 30, 2017 and December 31, 2016, distributions payable to the non-controlling interest were approximately $584,000 and $570,000 respectively.~~



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Note 1614 – Commitments and Contingencies

Commitments and Contingencies

Commitments and contingencies may arise in the ordinary course of business. Our material off-balance sheet commitments as of September 30, ~~2017~~2019 are discussed below.

As discussed in Note 65 - "Other Assets", we have invested in unconsolidated ventures that are sponsored by an affiliate of our Manager. The unconsolidated ventures are structured as partnerships, and we invest in the partnerships as a limited partner. The entities are structured such that capital commitments are to be drawn down over the life of the partnership as investment opportunities are identified. As of September 30, ~~2017~~2019 and December 31, ~~2016,~~2018, our undrawn capital and purchase commitments were ~~$12.9~~$6.4 million and ~~$15.5~~$10.0 million, respectively.

As discussed in Note 5 - ~~"Commercial Loans Held-for-Investment"~~"Other Assets", we ~~purchase and originate commercial loans.~~have funded our portion of a commitment in a loan participation. The remainder of our commitment will be funded over the remaining term of the loan based upon the financing needs of the borrower. As of September 30, ~~2017 and December 31, 2016,~~2019, we have an unfunded ~~commitments on commercial loans held-for-investment~~commitment of ~~$5.8 million and $9.7 million, respectively.~~$29.9 million.

We have entered into agreements with financial institutions to guarantee certain obligations of our subsidiaries. We would be required to perform under these guarantees in the event of certain defaults. We have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

Note 1715 – Subsequent Events

Dividends

We ~~have reviewed subsequent~~declared the following dividends on our Series B and Series C Preferred Stock on November 5, 2019 to our stockholders of record as of December 5, 2019: a Series B Preferred Stock dividend of $0.4844 per share payable on December 27, 2019 and a Series C Preferred Stock dividend of $0.46875 per share payable on December 27, 2019.



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Amendment to Management Agreement

On November 6, 2019, we entered into a Third Amendment to the management agreement, dated July 1, 2009 and amended on May 24, 2011 and July 1, 2015, between the Company, the Operating Partnership, IAS Asset I LLC and our Manager (the “Amendment”). Under the Amendment, effective October 1, 2019, our management fee will be equal to 1.50% of our stockholders’ equity per annum. For purposes of calculating the management fee, stockholders’ equity will be calculated as average month end stockholders’ equity for the prior calendar quarter as determined in accordance with U.S. GAAP. Stockholders’ equity may exclude one-time events ~~occurring~~due to changes in U.S. GAAP and certain non-cash items upon approval by a majority of our independent directors. The Amendment also clarified language in the management agreement regarding the pass through of certain costs incurred by our Manager in providing services to the ~~date that these condensed consolidated financial statements were issued, and determined that no subsequent events occurred that would require accrual or additional disclosure.~~Company. The full text of the Amendment is attached as Exhibit 10.1 to this report on Form 10-Q.



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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

In this quarterly report on Form 10-Q, or this “Report,” we refer to Invesco Mortgage Capital Inc. and its consolidated subsidiaries as “we,” “us,” “our Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, Invesco Advisers, Inc., as our “Manager,” and we refer to the indirect parent company of our Manager, Invesco Ltd. together with its consolidated subsidiaries (which does not include us), as “Invesco.”

The following discussion should be read in conjunction with our condensed consolidated financial statements and the accompanying notes to our condensed consolidated financial statements, which are included in Item 1 of this Report, as well as the information contained in our most recent Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Forward-Looking Statements

We make forward-looking statements in this Report and other filings we make with the SEC within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” ~~“continue,”~~ “intend,” ~~“should,” “may”~~"project," "forecast" or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements. Factors that could cause actual results to differ from those expressed in our forward-looking statements include, but are not limited to:

our business and investment strategy;

our investment portfolio;

our projected operating results;

general volatility of financial markets and effects of governmental responses, including actions and initiatives of the U.S. governmental agencies and changes to U.S. government policies, ~~including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),~~ mortgage loan modification programs, actions and initiatives of foreign governmental agencies and central banks, monetary policy actions of the Federal Reserve, including actions relating to its agency mortgage-backed securities portfolio and the continuation of re-investment of principal payments, and our ability to respond to and comply with such actions, initiatives and changes;

the availability of financing sources, including our ability to obtain additional financing arrangements and the terms of such arrangements;

financing and advance rates for our target assets;

changes to our expected leverage;

our expected investments;

our expected book value per ~~share of~~ common ~~stock;~~share;

interest rate mismatches between our target assets and our borrowings used to fund such investments;

the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;

our ability to maintain sufficient liquidity to meet any margin calls;

changes in the credit rating of the U.S. government;

changes in interest rates and interest rate spreads and the market value of our target assets;

changes in prepayment rates on our target assets;

the impact of any deficiencies in foreclosure practices of third parties and related uncertainty in the timing of collateral disposition;

our reliance on third parties in connection with services related to our target assets;

effects of hedging instruments on our target assets;

rates of default or decreased recovery rates on our target assets;



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~~rates of default or decreased recovery rates on our target assets;~~

modifications to whole loans or loans underlying securities;

the degree to which our hedging strategies may or may not protect us from interest rate volatility;

the degree to which derivative contracts expose us to contingent liabilities;

counterparty defaults;

compliance with financial covenants in our financing arrangements;

changes in governmental regulations, zoning, insurance, eminent domain and tax law and rates, and similar matters and our ability to respond to such changes;

our ability to maintain our qualification as a real estate investment trust for U.S. federal income tax purposes;

our ability to maintain our exception from the definition of “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”);

availability of investment opportunities in mortgage-related, real estate-related and other securities;

availability of U.S. Government Agency guarantees with regard to payments of principal and interest on securities;

the market price and trading volume of our capital stock;

availability of qualified personnel of our Manager;

the relationship with our Manager;

estimates relating to taxable income and our ability to continue to make distributions to our stockholders in the future;

estimates relating to fair value of our target assets and loan loss reserves;

our understanding of our competition;

changes to generally accepted accounting principles in the United States of America (“U.S. GAAP”);

the adequacy of our disclosure controls and procedures and internal controls over financial reporting; and

market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities ("MBS") and mortgage loans. We are externally managed and advised by Invesco Advisers, Inc., our Manager, a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd., a leading independent global investment management firm. Our objective is to provide attractive risk-adjusted returns to our investors, primarily through dividends and secondarily through capital appreciation. To achieve this objective, we primarily invest in the following:

Residential mortgage-backed securities ~~(“RMBS”~~("RMBS") that are guaranteed by a U.S. government agency such as the Government National Mortgage Association ("Ginnie Mae") or a federally chartered corporation such as the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac") (collectively "Agency RMBS");

Commercial mortgage-backed securities ("CMBS") that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively "Agency CMBS");



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RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation ("non-Agency RMBS");

CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation ("non-Agency CMBS");

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



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~~Commercial mortgage-backed securities (“CMBS”);~~

Residential and commercial mortgage loans; and

Other real estate-related financing arrangements.

We elected to be taxed as a real estate investment trust ~~(“REIT”~~("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of ~~1986, as amended (“Code”), commencing with our taxable year ended December 31, 2009.~~1986. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually. We operate our business in a manner that permits our exclusion from the definition of ~~“Investment Company”~~"Investment Company" under the 1940 Act. We are externally managed and advised by Invesco Advisers, Inc., our Manager, which is an indirect, wholly-owned subsidiary of Invesco Ltd.

Capital Activities

~~In August 2017,~~On February 7, 2019, we completed a public offering of ~~11,500,000~~16,100,000 shares of ~~7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock")~~common stock at the price of ~~$25.00~~$15.73 per share. Total net proceeds were ~~$287.5~~approximately $249.5 million ~~before issuance costs~~after deducting offering expenses.

On August 16, 2019, we completed a public offering of ~~$9.4 million.~~14,000,000 shares of common stock at the price of $15.86 per share. Total net proceeds were approximately $219.3 million after deducting offering expenses.

We may sell up to 17,000,000 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement. These shares are registered with the SEC under our automatic shelf registration statement (as amended and/or supplemented). During the nine months ended September 30, 2019, we issued 1,093,136 shares of common stock under our equity distribution agreement for proceeds of $17.2 million, net of approximately $363,000 in commissions and fees.

On September ~~14, 2017,~~16, 2019, we declared the following dividends:

a dividend of ~~$0.41~~$0.45 per share of common stock ~~to be~~ paid on October ~~26, 2017~~28, 2019 to stockholders of record as of the close of business on September 27, ~~2017;~~2019; and

a dividend of $0.4844 per share of Series A Preferred Stock ~~to be~~ paid on October 25, ~~2017~~2019 to stockholders of record as of the close of business on October 1, ~~2017;~~2019.

On August 1, 2019, we declared the following dividends:

a dividend of $0.4844 per share of Series B Preferred Stock ~~to be~~ paid on ~~December~~September 27, ~~2017~~2019 to stockholders of record as of the close of business on ~~December~~September 5, ~~2017;~~2019; and

a dividend of ~~$0.6823~~$0.46875 per share of Series C Preferred Stock ~~to be~~ paid on ~~December~~September 27, ~~2017~~2019 to stockholders of record as of the close of business on ~~December~~September 5, ~~2017.~~

The first dividend on the Series C Preferred Stock covers the period from the date of issuance, August 16, 2017, to but not including the dividend payment date, December 27, 2017, of $0.6823 per share. Future dividends will be paid quarterly in arrears on the 27th day of March, June, September and December at the rate of $0.4688 per share or $1.875 per annum per share through but not including September 27, 2027.2019.

During the nine months ended September 30, ~~2017,~~2019, we did not repurchase any shares of our common stock.

Factors Impacting Our Operating Results

Our operating results can be affected by a number of factors and primarily depend on the level of our net interest income and the market value of our assets. Our net interest income, which includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market interest rates and prepayment speeds, as measured by the constant prepayment rate (“CPR”) on our target assets. Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. The market value of our assets can be impacted by credit spread premiums (yield advantage over U.S. Treasury notes) and the supply of, and demand for, target assets in which we invest.

Market Conditions

Macroeconomic factors that affect our business include ~~credit~~interest rates, interest rate spread premiums, ~~market interest rates,~~ governmental policy initiatives, residential and commercial real estate prices, credit availability, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.

Financial ~~markets continued to benefit from decreasing levels of volatility~~conditions were slightly tighter during the third quarter of 2019 as volatility measures increased, and the performance of equity markets ~~rallied~~ and credit ~~was generally tighter. Investor sentiment remained strong, even~~spreads were mixed. Volatility increased across the fixed income and equity markets as uncertainty around trade policy and future Federal Reserve policy actions continued. After a strong start to the ~~President's political agenda and potential geopolitical events continue unabated. U.S.~~year, equity ~~markets were higher across~~performance moderated during the ~~board,~~quarter, with ~~the total returns on~~ the S&P 500 ~~(+4.5%), the Dow Jones Industrial Average (+5.6%)~~Index returning 1% and the NASDAQ ~~(+6.1%) all positive since the beginning of the quarter. Equity volatility was sharply lower, with the Chicago Board options Exchange SPX Volatility Index down 14.9%~~losing 0.1% during the third quarter. This brought the year-to-date total return of these indices to 18.7% and 20.6%, respectively. Commodity prices ~~rebounded~~declined during the third quarter, as the CRB Commodity Price Index ~~was up 4.8%~~decreased by 3.9% and WTI Crude ~~Oil was~~decreased by 7.1%.

The U.S. economy appeared to be growing at a moderate pace, and the labor market remained positive. Monthly gains in non-farm payrolls averaged 157,000 for the third quarter, up ~~10.5%~~slightly from the 152,000 average of the second quarter. The unemployment rate hit a multi-year low at 3.5%. ~~While~~The consensus forecast for GDP growth in 2019 is 2.3%, with the consensus estimates for 2020 and 2021 at 1.7% and 1.8%, respectively.

Inflation remained subdued during the third quarter, with the U.S. Personal Consumption Expenditure Core Price Index remaining below the Federal Reserve’s inflation target of 2%. Implied breakeven rates on Treasury Inflation Protected securities, which reflect the market's expectation of future inflation rates, remained low, with the implied two and five-year inflation rates ending the second quarter at 1.30% and 1.35%, respectively. The Federal Open Market Committee ~~did not raise~~("FOMC") lowered the benchmark Federal Funds rate by 25 basis points at its September 18 meeting and have signaled that further interest rate cuts may be warranted. As of quarter end, the pricing of federal funds ~~target~~futures contracts implied that the FOMC will cut the Federal Funds rate approximately three more times over the course of 2019 and 2020. This caused Treasury rates to fall across the maturity spectrum, with the two-year Treasury rate falling 13 basis points during the third quarter to 1.62% and the 10 year Treasury rate falling 34 basis points to 1.66% as of September 30, 2019. The market for repurchase agreements underwent a period of volatility during the quarter ~~they did announce~~due to a number of technical factors, prompting the Federal Reserve to intervene and restore order. The Federal Reserve has subsequently addressed this issue through open market operations and communicating a plan to increase reserve levels by purchasing Treasury Bills.

The performance of structured securities was mixed during the third quarter of 2019. Lower coupon Agency RMBS mortgages underperformed similar duration Treasuries during the quarter, while higher coupon Agency RMBS mortgages outperformed similar duration Treasuries. Agency RMBS pools backed by collateral that ~~they~~offered protection against prepayment risk performed well, as prepayment activity is expected to remain elevated in the coming quarters.

During the third quarter, spreads (defined as the yield in excess of risk-free rates) on non-Agency CMBS and GSE CRT securities were mixed, while spreads on Agency CMBS were slightly wider. Fundamentals in both commercial and residential housing remain on solid footing, lending support to asset prices.

We expect the U.S. will ~~begin reducing~~continue to experience moderate, albeit slowing, economic growth, and that core inflation will remain close to the Federal Reserve’s policy objective of 2%. Investors remained focused on the actions of central banks, their ~~holdings~~impact on the global economy, the potential impact of ~~U.S. Treasuries~~trade tensions and ~~Agency mortgage-backed securities by reducing~~onging Brexit negotiations.

In addition, the ~~amount~~regulatory landscape for our repurchase agreement counterparties continues to evolve, which may affect their funding methods and lending practices. While we are not directly subject to compliance with the rules governing financial institutions, the effect of ~~maturities~~these regulations and ~~paydowns~~others could impact our ability to finance our assets in the future.

Proposed Changes to LIBOR

On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the "FCA" ), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be ~~reinvested.~~phased out or the methodology for determining LIBOR will be modified by 2021. The ~~details~~Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR, and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR.

We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks. However, it is not possible to predict the effect of any of these developments, and any future initiatives to regulate, reform or change the ~~balance sheet reduction were broadly anticipated by~~manner of administration of LIBOR could result in adverse consequences to the rate of interest payable and receivable on, market value of and ~~did not cause any material impact. As we head into~~market liquidity for LIBOR-based financial instruments.

Our Manager is finalizing its global assessment of exposure in relation to our LIBOR-based instruments and benchmarks and is prioritizing the ~~fourth quarter~~mitigation of ~~2017, investor concerns are largely unchanged. These concerns include increased geopolitical tensions in~~risks associated with the forecasted changes to financial instruments and performance benchmarks referencing existing LIBOR rates.



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Table of Contents

~~Middle East~~Centrally cleared swaps are among our LIBOR-based material contracts that may be impacted. The Chicago Mercantile Exchange ("CME") announced a high-level proposal for transitioning price alignment interest (used to determine interest paid on cash collateral) and the discount rate for USD centrally cleared swaps from the daily effective federal funds rate (EFFR) to SOFR. Their goal in publishing the proposal is to facilitate discussion on how this transition will be implemented. They propose that after the ~~Korean peninsula,~~close of business on October 16, 2020, the ~~ongoing Brexit negotiations,~~CME would conduct a standard end-of-day valuation cycle using EFFR discounting to determine variation margin and price alignment interest. Upon completion of this initial cycle, CME would then conduct a special cycle in which positions will be valued using SOFR as ~~well~~the discount rate. In an effort to neutralize the value transfer attributed to the change in the discounting rate, CME proposes making a cash adjustment that is equal to the change in each cleared swap's net present value. To mitigate hedging costs associated with this transition and sensitivity to closing curve markets on October 16, 2020, CME would book a series of EFFR/SOFR basis swaps to participants’ accounts. They propose that this will restore participants back to their original risk profiles and be booked at the October 16, 2020 closing curve levels.

LCH Limited ("LCH") also proposed plans to switch from using EFFR to SOFR as ~~concerns about~~both the ~~ability~~discount rate used to value USD centrally cleared swaps and the rate used to determine price alignment interest. Similar to CME, LCH proposes compensation for valuation and risk adjustment will be provided in the form of cash and compensating basis swaps.

In October, the IRS and Treasury proposed regulations that are expected to provide taxpayers relief from adverse impacts resulting from the transition away from LIBOR to an alternative reference rate. The proposed regulations make clear that a change in the reference rate (and associated alterations to payment terms) of a financial instrument is generally not considered a taxable event, provided the fair value of the ~~U.S. administration~~modified instrument is substantially equivalent to ~~enact meaningful health care, tax and/or regulatory reform.~~

~~The consensus of economists’ forecast for growth in U.S. domestic economic activity stands at 2.2% for 2017, and~~ the Federal Reserve Bank of Atlanta’s GDPNow forecast for 2017 GDP growth is 2.3%. The consensus for the 2017 core personal consumption expenditures deflator is 1.5%, up slightly from 1.4% during the quarter, still well below the 2% target communicated by the U.S. Federal Reserve. Monthly increases in payroll employment averaged 91,000 jobs per month for the third quarter of 2017, down significantly from the average of 187,000 over the coursefair value of the second quarter, although the third quarter numbers were materially impacted by the effects of the multiple hurricanes that hit the U.S. during the quarter. Sentiment indicators, including the University of Michigan Consumer Sentiment Index and the Institute for Supply Management Manufacturing PMI both remained at or near multi-year highs. This continues to be in sharp contrast to most of the economic indicators (retail sales, employment, wage growth) that have been generally softer. This divergence in sentiment versus actual data is one of the largest uncertainties facing investors for the balance of 2017.unmodified instrument.

U.S. interest rates were slightly higher over the quarter, with shorter maturity Treasury rates increasing more than longer maturity Treasury rates. During the third quarter, the yield on the 2 year Treasury note was 9 basis points higher, ending at 1.48%, while the yield on the 10 year Treasury note increased by 3 basis points, ending the quarter at 2.33%. Three month LIBOR increased 3 basis points to 1.33%, and swap spreads were mixed during the quarter, with the 2 year spread ending the quarter 2 basis points wider, while the 5 year swap spread was flat and the 10 year swap spread ended the quarter 2 basis points tighter. Despite the Federal Reserve’s announcement that they will begin tapering their investments in Agency RMBS in October, mortgages performed well during the quarter, with 15 and 30 year fixed rate Agency RMBS, as well as Hybrid ARMs delivering positive excess return versus Treasury notes. Prepayment speeds picked up modestly during the quarter, but we expect speeds to moderate as housing activity tends to decrease as we move into the fall and winter months. Credit spreads were mixed across the securitized space, with CMBS bonds rated single-A issued in 2012 and 2013 3 basis points tighter and 6 basis points tighter, respectively. Spreads on non-investment grade rated Credit Risk Transfer bonds issued in 2014 and 2015 were approximately 25 basis points wider during the quarter, as investors assessed the impacts of hurricanes Harvey and Irma.

In addition, the regulatory landscape for our repurchase agreement counterparties continues to evolve following the adoption of new capital rules that generally affect the manner in which banks lend. Regulators are also focused on liquidity requirements that will likely impact how banks fund themselves. While we are not directly subject to compliance with the implementation of rules regarding financial institutions, the effect of these regulations and others could affect the terms on which we finance our assets in the future.

Investment Activities

The table below shows the allocation of our equity as of September 30, ~~2017,~~2019, December 31, ~~2016~~2018 and September 30, ~~2016:~~2018:


	As of						As of
$ in thousands	September 30, 2017		December 31, 2016		September 30, 2016		September 30, 2019		December 31, 2018		September 30, 2018
Agency RMBS	41	%	41	%	44	%	44	%	46	%	50	%
Agency CMBS							14	%	3	%	1	%
Commercial Credit ⁽¹⁾	38	%	32	%	31	%	29	%	33	%	31	%
Residential Credit ⁽²⁾	21	%	27	%	25	%	13	%	18	%	18	%
Total	100	%	100	%	100	%	100	%	100	%	100	%



Maryland		26-2749336
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1555 Peachtree Street, N.E., Suite 1800,
Atlanta,	Georgia	30309
(Address of Principal Executive Offices)		(Zip Code)



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	IVR	New York Stock Exchange
7.75% Series A Cumulative Redeemable Preferred Stock	IVRpA	New York Stock Exchange
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock	IVRpB	New York Stock Exchange
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock	IVRpC	New York Stock Exchange



Large ~~Accelerated~~accelerated filer	ý☒		Accelerated filer	o☐
Non-Accelerated filer	o☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o☐
			Emerging growth company	o☐



		Page
PART I FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1

	Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2019 and December 31, ~~2016~~2018	1

	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	2

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~2018	3

	Unaudited Condensed Consolidated ~~Statement~~Statements of Equity for the ~~nine~~three months ended March 31, 2019; June 30, 2019 and September 30, ~~2017~~2019 and March 31, 2018; June 30, 2018 and September 30, 2018	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2019 and ~~2016~~	5

	~~Notes to Condensed Consolidated Financial Statements~~2018	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6769

Item 4.	Controls and Procedures	7172

PART II OTHER INFORMATION		7273

Item 1.	Legal Proceedings	7273

Item 1A.	Risk Factors	7273

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7273

Item 3.	Defaults Upon Senior Securities	7273

Item 4.	Mine Safety Disclosures	73

Item 5.	Other Information	73

Item 6.	Exhibits	75



	As of
$ in thousands except share amounts	September 30, 2019		December 31, 2018
ASSETS
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $21,866,617 and $17,082,825, respectively)	23,599,499		17,396,642
Cash and cash equivalents	125,888		135,617
Restricted cash	80,086		—
Due from counterparties	10,284		13,500
Investment related receivable	72,959		66,598
Derivative assets, at fair value	4,127		15,089
Other assets	168,480		186,059
Total assets	24,061,323		17,813,505
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	18,072,032		13,602,484
Secured loans	1,650,000		1,650,000
Derivative liabilities, at fair value	46,381		23,390
Dividends and distributions payable	66,974		49,578
Investment related payable	1,271,718		132,096
Accrued interest payable	29,831		37,620
Collateral held payable	1,096		18,083
Accounts payable and accrued expenses	2,477		1,694
Due to affiliate	9,782		11,863
Total liabilities	21,150,291		15,526,808
Commitments and contingencies (See Note 14):
Equity:
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference)	135,356		135,356
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference)	149,860		149,860
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference)	278,108		278,108
Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 142,802,293 and 111,584,996 shares issued and outstanding, respectively	1,427		1,115
Additional paid in capital	2,869,650		2,383,532
Accumulated other comprehensive income	325,850		220,813
Retained earnings (distributions in excess of earnings)	(849,219	)	(882,087	)
Total stockholders’ equity	2,911,032		2,286,697
Total liabilities and stockholders' equity	24,061,323		17,813,505



ý(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended September 30,				Nine Months Ended September 30,
$ in thousands, except share amounts	2017		2016		2017		2016
Interest Income
Mortgage-backed and credit risk transfer securities	134,138		112,467		374,038		347,573
Commercial loans	6,251		5,680		18,036		16,520
Total interest income	140,389		118,147		392,074		364,093
Interest Expense
Repurchase agreements	45,907		24,892		111,926		97,952
Secured loans	5,544		2,746		13,492		8,149
Exchangeable senior notes	2,724		5,620		11,236		16,847
Total interest expense	54,175		33,258		136,654		122,948
Net interest income	86,214		84,889		255,420		241,145
Other Income (loss)
Gain (loss) on investments, net	(11,873	)	(7,155	)	(2,551	)	5,860
Equity in earnings (losses) of unconsolidated ventures	408		729		(1,280	)	1,992
Gain (loss) on derivative instruments, net	1,955		35,378		(46,096	)	(293,528	)
Realized and unrealized credit derivative income (loss), net	(2,930	)	31,926		38,428		57,564
Net loss on extinguishment of debt	(1,344	)	—		(6,581	)	—
Other investment income (loss), net	2,313		(554	)	6,175		(3,617	)
Total other income (loss)	(11,471	)	60,324		(11,905	)	(231,729	)
Expenses
Management fee – related party	9,557		6,719		27,385		25,292
General and administrative	1,697		1,836		5,389		5,769
Total expenses	11,254		8,555		32,774		31,061
Net income (loss)	63,489		136,658		210,741		(21,645	)
Net income (loss) attributable to non-controlling interest	800		1,723		2,656		(235	)
Net income (loss) attributable to Invesco Mortgage Capital Inc.	62,689		134,935		208,085		(21,410	)
Dividends to preferred stockholders	13,562		5,716		24,994		17,148
Net income (loss) attributable to common stockholders	49,127		129,219		183,091		(38,558	)
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic	0.44		1.16		1.64		(0.34	)
Diluted	0.43		1.05		1.59		(0.34	)
Dividends declared per common share	0.41		0.40		1.21		1.20


												Attributable to Common Stockholders
																	Additional Paid in Capital			Accumulated Other Comprehensive Income			Retained Earnings (Distributions in excess of earnings)		Total Stockholders’ Equity			Non- Controlling Interest																													Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Distributions in excess of earnings)			Total Stockholders’ Equity
	Series A Preferred Stock		Series B Preferred Stock				Series C Preferred Stock																										Series A Preferred Stock						Series B Preferred Stock						Series C Preferred Stock
$ in thousands except share amounts	Series A Preferred Stock					Common Stock						Non- Controlling Interest				Common Stock																	Series A Preferred Stock						Series B Preferred Stock						Series C Preferred Stock
$ in thousands except share amounts	Shares	Amount	Series B Preferred Stock	Shares		Amount					Shares			Amount								Shares					Amount									Shares			Amount			Shares			Amount			Shares			Amount			Shares					Amount						Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)	Retained Earnings (Distributions in excess of earnings)
Balance at December 31, 2016	5,600,000	135,356	6,200,000		149,860		Series C Preferred Stock	—		—				111,594,595					1,116					2,379,863		293,668				(718,303	)		2,241,560			28,624
Balance at December 31, 2018																																5,600,000			135,356			6,200,000			149,860			11,500,000			278,108			111,584,996			1,115			2,383,532		220,813			(882,087	)	2,286,697
Net income	—	—	—		—		—		—				—		—			—			—			208,085		208,085			2,656			210,741		—			—			—			—			—			—			—			—			—		—		138,790		138,790
Other comprehensive income	—	—	—		—		—		—				—		—			—			57,017			—		57,017			728			57,745		—			—			—			—			—			—			—			—			—			56,369			—						56,369
Proceeds from issuance of preferred stock, net of offering costs	—	—	—		—		11,500,000		278,108			—		—			—			—			—		278,108			—			278,108
Proceeds from issuance of common stock, net of offering costs																																	—			—			—			—			—			—			16,672,000			167			258,386			—			—			258,553
Stock awards	—	—	—		—		—		—			21,956		—			—			—			—		—			—			—		—			—			—			—			—			—			10,501			—			—			—			—			—
Common stock dividends	—	—	—		—		—		—			—		—			—			—			(135,049	)	(135,049	)		—			(135,049	)	—			—			—			—			—			—			—			—			—			—			(57,720	)		(57,720	)
Common unit dividends	—	—	—		—		—		—			—		—			—			—			—		—			(1,724	)		(1,724	)
Preferred stock dividends	—	—	—		—		—		—			—		—			—			—			(24,994	)	(24,994	)		—			(24,994	)	—			—			—			—			—			—			—			—			—			—			(11,107	)		(11,107	)
Amortization of equity-based compensation	—	—	—		—		—		—			—		—			378			—			—		378			5			383		—			—			—			—			—			—			—			—			132			—			—			132
Rebalancing of ownership percentage of non-controlling interest	—	—	—		—		—		—			—		—			3,916			1			—		3,917			(3,917	)		—
Balance at September 30, 2017	5,600,000	135,356	6,200,000		149,860		11,500,000		278,108			111,616,551		1,116			2,384,157			350,686			(670,261	)	2,629,022			26,372			2,655,394
Balance at March 31, 2019																																	5,600,000			135,356			6,200,000			149,860			11,500,000			278,108			128,267,497			1,282			2,642,050			277,182			(812,124	)		2,671,714
Net income																																	—			—			—			—			—			—			—			—			—			—			18,336			18,336
Other comprehensive income																																	—			—			—			—			—			—			—			—			—			40,831			—			40,831
Proceeds from issuance of common stock, net of offering costs																																	—			—			—			—			—			—			521,136			5			8,149			—			—			8,154
Stock awards																																	—			—			—			—			—			—			6,895			—			—			—			—			—
Common stock dividends																																	—			—			—			—			—			—			—			—			—			—			(57,958	)		(57,958	)
Preferred stock dividends																																	—			—			—			—			—			—			—			—			—			—			(11,106	)		(11,106	)
Amortization of equity-based compensation																																	—			—			—			—			—			—			—			—			130			—			—			130
Balance at June 30, 2019																																	5,600,000			135,356			6,200,000			149,860			11,500,000			278,108			128,795,528			1,287			2,650,329			318,013			(862,852	)		2,670,101
Net income																																	—			—			—			—			—			—			—			—			—			—			89,003			89,003
Other comprehensive income																																	—			—			—			—			—			—			—			—			—			7,837			—			7,837
Proceeds from issuance of common stock, net of offering costs																																	—			—			—			—			—			—			14,000,000			140			219,191			—			—			219,331
Stock awards																																	—			—			—			—			—			—			6,765			—			—			—			—			—
Common stock dividends																																	—			—			—			—			—			—			—			—			—			—			(64,263	)		(64,263	)
Preferred stock dividends																																	—			—			—			—			—			—			—			—			—			—			(11,107	)		(11,107	)
Amortization of equity-based compensation																																	—			—			—			—			—			—			—			—			130			—			—			130
Balance at September 30, 2019																																	5,600,000			135,356			6,200,000			149,860			11,500,000			278,108			142,802,293			1,427			2,869,650			325,850			(849,219	)		2,911,032



$ in thousands	Carrying Amount	Company's Maximum Risk of Loss
Non-Agency CMBS	3,851,552	3,851,552
Non-Agency RMBS	1,018,511	1,018,511
Investments in unconsolidated ventures	23,305	23,305
Total	4,893,368	4,893,368



September 30, 2017
$ in thousands	Principal/ Notional Balance	Unamortized Premium (Discount)		Amortized Cost	Unrealized Gain/ (Loss), net		Fair Value	Net Weighted Average Coupon (1)		Period- end Weighted Average Yield (2)		Quarterly Weighted Average Yield (3)
Agency RMBS:
15 year fixed-rate	3,046,720	126,676		3,173,396	(38,516	)	3,134,880	3.09	%	2.16	%	1.95	%
30 year fixed-rate	7,062,725	294,240		7,356,965	29,579		7,386,544	3.75	%	3.08	%	2.73	%
ARM^*	249,982	1,788		251,770	2,996		254,766	2.67	%	2.60	%	2.35	%
Hybrid ARM	1,782,077	27,850		1,809,927	9,586		1,819,513	2.70	%	2.54	%	2.19	%
Total Agency pass-through⁽⁴⁾	12,141,504	450,554		12,592,058	3,645		12,595,703	3.41	%	2.76	%	2.43	%
Agency-CMO⁽⁵⁾	1,307,945	(1,026,765	)	281,180	(7,041	)	274,139	1.96	%	2.80	%	2.71	%
Non-Agency RMBS^(6)(7)(8)	2,995,292	(1,713,985	)	1,281,307	139,026		1,420,333	2.16	%	6.57	%	6.56	%
GSE CRT^(9)(10)	763,747	24,939		788,686	71,894		860,580	3.08	%	2.34	%	2.74	%
CMBS^(11)(12)	3,726,929	(679,272	)	3,047,657	61,140		3,108,797	3.90	%	4.85	%	4.52	%
Total	20,935,417	(2,944,529	)	17,990,888	268,664		18,259,552	3.21	%	3.37	%	3.13	%


(1)	~~Net weighted average coupon as of September 30, 2017 is based on principal/notional balance and is presented net of servicing and other fees.~~


~~(2)~~	Period-end weighted average yield is based on amortized cost as of September 30, ~~2017~~2019 and incorporates future prepayment and loss assumptions.


~~(3)~~	Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.


~~(4)~~	~~We have elected the fair value option for Agency RMBS purchased on or after September 1, 2016 which represent 39.3% of principal/notional balance, 39.0% of amortized cost and 39.1% of fair value.~~



September 30, 2019
$ in thousands	Principal/ Notional Balance	Unamortized Premium (Discount)		Amortized Cost	Unrealized Gain/ (Loss), net	Fair Value	Period- end Weighted Average Yield ⁽¹⁾
Agency RMBS:
15 year fixed-rate	296,708	1,873		298,581	10,689	309,270	3.33	%
30 year fixed-rate	11,381,340	366,162		11,747,502	297,405	12,044,907	3.66	%
Hybrid ARM^*	60,551	654		61,205	1,444	62,649	3.58	%
Total Agency RMBS pass-through	11,738,599	368,689		12,107,288	309,538	12,416,826	3.65	%
Agency-CMO ⁽²⁾	930,836	(500,625	)	430,211	17,181	447,392	3.48	%
Agency CMBS⁽³⁾	4,597,320	77,442		4,674,762	261,421	4,936,183	3.00	%
Non-Agency CMBS ⁽⁴⁾	4,446,232	(778,004	)	3,668,228	183,324	3,851,552	5.23	%
Non-Agency RMBS ^(5)(6)(7)	2,467,994	(1,565,995	)	901,999	116,512	1,018,511	6.72	%
GSE CRT ⁽⁸⁾	862,797	22,387		885,184	43,851	929,035	2.88	%
Total	25,043,778	(2,376,106	)	22,667,672	931,827	23,599,499	3.86	%


~~(6)~~(3)	Includes approximately $1.3 billion of to-be-announced ("TBA") securities that will primarily settle in the fourth quarter of 2019.


~~(5)~~(2)	Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities ("Agency IO"), which represent ~~83.7%~~57.2% of principal/notional balance, ~~23.4%~~6.7% of amortized cost and ~~21.5%~~6.6% of fair value.


(4)	Non-Agency ~~RMBS held by us is 41.3% fixed rate, 49.7% variable rate,~~CMBS includes interest-only securities which represent 13.3% of principal/notional balance, 0.3% of amortized cost and ~~9.0% floating rate based on~~0.3% of fair value.


~~(7)~~(5)	Non-Agency RMBS is 57.8% fixed rate, 37.0% variable rate, and 5.2% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying Hybrid ARM loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.


(6)	Of the total discount in non-Agency RMBS, ~~$213.2~~$128.9 million is non-accretable (calculated using the principal/notional balance) based on estimated future cash flows of the securities.


~~(8)~~(7)	Non-Agency RMBS includes interest-only securities ("non-Agency IO") which represent ~~49.3%~~56.3% of principal/notional balance, ~~1.8%~~2.2% of amortized cost and ~~1.7%~~1.9% of fair value.


~~(9)~~	We have elected the fair value option for GSE CRT purchased on or after August 24, 2015, which represent 26.3% of the balance based on fair value. As a result, GSE CRT accounted for under the fair value option are not bifurcated between the debt host contract and the embedded derivative.


~~(10)~~(8)	GSE CRT ~~weighted average coupon and~~ weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.


~~(11)~~	~~CMBS includes interest-only securities which represent 16.5% of principal/notional balance, 0.6% of amortized cost and 0.6% of fair value.~~


~~(12)~~	~~We have elected the fair value option for CMBS purchased on or after September 1, 2016 which represent 21.3% of principal/notional balance, 22.4% of amortized cost and 21.7% of fair value.~~



December 31, 2016
$ in thousands	Principal/Notional Balance	Unamortized Premium (Discount)		Amortized Cost	Unrealized Gain/ (Loss), net		Fair Value	Net Weighted Average Coupon (1)		Period- end Weighted Average Yield (2)		Quarterly Weighted Average Yield (3)
Agency RMBS:
15 year fixed-rate	3,460,625	151,526		3,612,151	(54,223	)	3,557,928	3.11	%	2.19	%	1.99	%
30 year fixed-rate	2,780,806	185,521		2,966,327	15,390		2,981,717	4.37	%	2.61	%	2.57	%
ARM	301,900	2,520		304,420	3,453		307,873	2.69	%	2.59	%	2.16	%
Hybrid ARM	2,423,152	42,360		2,465,512	8,789		2,474,301	2.70	%	2.52	%	2.02	%
Total Agency pass-through⁽⁴⁾	8,966,483	381,927		9,348,410	(26,591	)	9,321,819	3.37	%	2.42	%	2.20	%
Agency-CMO⁽⁵⁾	1,712,120	(1,368,916	)	343,204	837		344,041	2.16	%	3.08	%	2.07	%
Non-Agency RMBS^(6)(7)(8)	3,838,314	(1,934,269	)	1,904,045	91,506		1,995,551	2.21	%	5.22	%	5.22	%
GSE CRT^(9)(10)	707,899	24,320		732,219	35,981		768,200	2.38	%	1.51	%	1.24	%
CMBS^(11)(12)	3,050,747	(559,857	)	2,490,890	60,830		2,551,720	3.80	%	4.21	%	4.17	%
Total	18,275,563	(3,456,795	)	14,818,768	162,563		14,981,331	3.05	%	3.05	%	2.87	%


(1)	~~Net weighted average coupon as of December 31, 2016 is based on principal/notional balance and is presented net of servicing and other fees.~~


~~(6)~~(3)	Non-Agency ~~RMBS held by us is 45.5% variable rate, 47.2% fixed rate,~~CMBS includes interest-only securities which represent 15.0% of principal/notional balance, 0.4% of amortized cost and ~~7.3% floating rate based on~~0.5% of fair value.


~~(7)~~(4)	Non-Agency RMBS is 43.5% variable rate, 50.7% fixed rate, and 5.8% floating rate based on fair value. Coupon payments on variable rate investments are based upon changes in the underlying Hybrid ARM loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.


~~(8)~~(6)	Non-Agency RMBS includes interest-only securities, which represent ~~43.5%~~55.4% of principal/notional balance, ~~1.5%~~2.3% of amortized cost and ~~1.3%~~2.4% of fair value.


~~(10)~~(7)	GSE CRT ~~weighted average coupon and~~ weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.



$ in thousands	September 30, 2017	% of Non-Agency		December 31, 2016	% of Non-Agency
Prime	676,285	47.5	%	889,658	44.6	%
Alt-A	412,880	29.1	%	447,213	22.4	%
Re-REMIC	202,554	14.2	%	364,301	18.2	%
Subprime/reperforming	128,614	9.2	%	294,379	14.8	%
Total Non-Agency	1,420,333	100.0	%	1,995,551	100.0	%



	Percentage of Re-REMIC Holdings at Fair Value
Re-REMIC Subordination⁽¹⁾	September 30, 2017		December 31, 2016
0% - 10%	30.6	%	17.6	%
10% - 20%	3.9	%	7.4	%
20% - 30%	10.8	%	13.5	%
30% - 40%	19.4	%	15.7	%
40% - 50%	13.9	%	27.0	%
50% - 60%	19.6	%	16.1	%
60% - 70%	1.8	%	2.7	%
Total	100.0	%	100.0	%



	December 31, 2018
$ in thousands	MBS and GSE CRT Securities		Interest-Only Securities		Total
Principal/notional balance	17,442,367		2,672,316		20,114,683
Unamortized premium	395,907		—		395,907
Unamortized discount	(549,988	)	(2,598,767	)	(3,148,755	)
Gross unrealized gains ⁽¹⁾	238,579		7,448		246,027
Gross unrealized losses ⁽¹⁾	(204,664	)	(6,556	)	(211,220	)
Fair value	17,322,201		74,441		17,396,642


	Less than 12 Months				12 Months or More				Total				Less than 12 Months				12 Months or More				Total
$ in thousands	Fair Value	Unrealized Losses		Number of Securities	Fair Value	Unrealized Losses		Number of Securities	Fair Value	Unrealized Losses		Number of Securities	Fair Value	Unrealized Losses		Number of Securities	Fair Value	Unrealized Losses		Number of Securities	Fair Value	Unrealized Losses		Number of Securities
Agency RMBS:
15 year fixed-rate	1,833,557	(32,156	)	108	702,899	(16,708	)	41	2,536,456	(48,864	)	149	3	—		1	1,067	(5	)	7	1,070	(5	)	8
30 year fixed-rate	3,169,397	(16,871	)	79	513,696	(14,512	)	30	3,683,093	(31,383	)	109	704,840	(1,584	)	7	56,531	(349	)	7	761,371	(1,933	)	14
ARM	85,467	(126	)	10	—	—		—	85,467	(126	)	10
Hybrid ARM	775,621	(4,867	)	75	54,299	(689	)	8	829,920	(5,556	)	83	438	(1	)	1	1,629	(50	)	4	2,067	(51	)	5
Total Agency pass-through⁽¹⁾	5,864,042	(54,020	)	272	1,270,894	(31,909	)	79	7,134,936	(85,929	)	351
Total Agency RMBS pass-through ⁽¹⁾													705,281	(1,585	)	9	59,227	(404	)	18	764,508	(1,989	)	27
Agency-CMO⁽²⁾	145,885	(9,853	)	44	18,602	(612	)	1	164,487	(10,465	)	45	45,278	(2,237	)	17	4,656	(641	)	9	49,934	(2,878	)	26
Non-Agency RMBS	134,772	(659	)	21	106,614	(1,628	)	14	241,386	(2,287	)	35
CMBS⁽³⁾	823,257	(15,470	)	72	19,196	(257	)	4	842,453	(15,727	)	76
Agency CMBS⁽³⁾													768,675	(7,331	)	31	—	—		—	768,675	(7,331	)	31
Non-Agency CMBS ⁽⁴⁾													83,184	(426	)	6	105,329	(7,165	)	7	188,513	(7,591	)	13
GSE CRT⁽⁵⁾													25,467	(198	)	1	—	—		—	25,467	(198	)	1
Non-Agency RMBS ⁽⁶⁾													19,653	(733	)	11	21,506	(225	)	4	41,159	(958	)	15
Total	6,967,956	(80,002	)	409	1,415,306	(34,406	)	98	8,383,262	(114,408	)	507	1,647,538	(12,510	)	75	190,718	(8,435	)	38	1,838,256	(20,945	)	113


(1)	~~Amounts disclosed include~~Includes Agency RMBS with a fair value of $730.8 million for which the fair value option has been elected. These securities have unrealized losses of $1.7 million.