Invesco Mortgage Capital Inc announced financial results for the quarter ended December 31, 2017.

Highlights:

• Q4 2017 net income attributable to common stockholders of $137.4 million or $1.23 basic earnings per common share compared to $49.1 million or $0.44 basic EPS in Q3 2017

• Q4 2017 core earnings* of $52.5 million or core EPS of $0.47 compared to $49.1 million or core EPS of $0.44 in Q3 2017

• Q4 2017 book value per diluted common share*** of $18.35 compared to $18.34 at Q3 2017 and $17.48 at Q4 2016

• Q4 2017 common stock dividend increased to $0.42 per share

"We are pleased to report our fourth consecutive quarter of growth in core earnings and another year of strong economic returns," said John Anzalone, Chief Executive Officer.  "We also increased our common stock dividend for the second consecutive quarter reflecting the core earnings power of our portfolio.  Additionally, the credit profile of our investment portfolio continues to strengthen as a result of further improvement in residential and commercial mortgage fundamentals."

* Core earnings (and by calculation, core earnings per common share) are non-Generally Accepted Accounting Principles ("GAAP") financial measures. Refer to the section entitled "Non-GAAP Financial Measures" for important disclosures and a reconciliation to the most comparable U.S. GAAP measures.

**Economic return for the quarter ended December 31, 2017 is defined as the change in book value per diluted common share from September 30, 2017 to December 31, 2017 of $0.01; plus dividends declared of $0.42 per common share; divided by the September 30, 2017 book value per diluted common share of $18.34. Economic return for the twelve months ended December 31, 2017 is defined as the change in book value per diluted common share fromDecember 31, 2016to December 31, 2017 of $0.87; plus dividends declared of $1.63 per common share; divided by the December 31, 2016 book value per diluted common share of $17.48.

***Book value per diluted common share is calculated as total equity less the liquidation preference of our Series A Preferred Stock ($140.0 million), Series B Preferred Stock ($155.0 million) and Series C Preferred Stock ($287.5 million); divided by total common shares outstanding plus Operating Partnership Units convertible into shares of common stock (1,425,000 shares).

Key performance indicators for the quarters ended December 31, 2017 and September 30, 2017 are summarized in the table below.

*Book value per diluted common share is calculated as total equity less the liquidation preference of our Series A Preferred Stock ($140.0 million), Series B Preferred Stock ($155.0 million) and Series C Preferred Stock ($287.5 million); divided by total common shares outstanding plus Operating Partnership Units convertible into shares of common stock (1,425,000 shares).

** Core earnings (and by calculation, core earnings per common share), effective interest income (and by calculation, effective yield), effective interest expense (and by calculation, effective cost of funds), effective net interest income (and by calculation, effective interest rate margin), and repurchase agreement debt-to-equity ratio are non-GAAP financial measures. Refer to the section entitled "Non-GAAP Financial Measures" for important disclosures and a reconciliation to the most comparable U.S. GAAP measures of net income (loss) attributable to common stockholders (and by calculation, basic earnings (loss) per common share), total interest income (and by calculation, average earning asset yields), total interest expense (and by calculation, cost of funds), net interest income (and by calculation, net interest rate margin) and debt-to-equity ratio.

Financial Summary

Net income attributable to common stockholders for the fourth quarter of 2017 was $137.4 million, compared to $49.1 million for the third quarter. The improvement in the fourth quarter was primarily due to a $64.3 million net gain on derivative instruments versus a $2.0 million net gain in the third quarter. Book value per diluted common share as of December 31, 2017 was $18.35 compared to $18.34 as of September 30, 2017.

During the fourth quarter of 2017, the Company generated $52.5 million in core earnings compared to $49.1 million in the third quarter. Higher core earnings reflect the full quarter accretive impact of the Company's August 2017 Preferred C stock offering. Fully invested proceeds of the offering drove a $7.5 million increase in effective net interest income that was partially offset by a $2.8 million increase in preferred dividends and $0.6 million increase in management fees associated with the offering.

The Company had average earning assets of $18.3 billion and interest income of $153.0 million in the fourth quarter compared to average earning assets of $17.4 billion and interest income of $140.4 million during the third quarter.  During the fourth quarter, the Company primarily used proceeds from paydowns and sales of investments to purchase 30 year fixed-rate Agency RMBS and CMBS and to repay debt. Average earning asset yields rose from 3.22% in the third quarter to 3.34% in the fourth quarter reflecting higher yields on 30 year fixed-rate Agency RMBS and CMBS.  As of December 31, 2017, the Company's holdings of 30 year fixed-rate Agency RMBS represented 42% of our total investment portfolio compared to 40% at September 30, 2017 and 20% at December 31, 2016.  The Company has increased its allocation of equity to Agency RMBS to 45% as of December 31, 2017 from 41% as of September 30, 2017 and December 31, 2016, respectively, as returns on Agency RMBS continue to be attractive compared to credit assets.

The Company increased its average borrowings by $0.7 billion in the fourth quarter, resulting in average borrowings of $15.9 billion and total interest expense of $59.9 million in the fourth quarter compared to average borrowings of $15.2 billion and total interest expense of $54.2 million during the third quarter. The Company's cost of funds was 1.51% and 1.43% for the fourth quarter and third quarter, respectively.  The Company's cost of funds rose during the fourth quarter primarily due to higher repurchase agreement borrowing rates leading up to the December 2017 increase in the Federal Funds target rate.

The Company held its debt-to-equity ratio constant at 6.0x in the fourth quarter of 2017. The Company retired an additional $14.4 million of its Exchangeable Senior Notes (the "Notes") during the fourth quarter and has reduced the balance of Notes outstanding to $143.4 million as of December 31, 2017.   The Company has sufficient liquidity through available cash and cash equivalents and additional borrowing capacity through repurchase agreements to retire the Notes when they mature on March 15, 2018.

Total expenses for the fourth quarter were approximately $12.0 million compared to $11.3 million for the third quarter. Total expenses were higher in the fourth quarter primarily due to a $0.6 million increase in management fees associated with the Company's August 2017 offering of Preferred C stock. The ratio of annualized total expenses to average equity* for the fourth quarter was 2.17%.

As previously announced, the Company declared the following dividends on December 14, 2017: a common stock dividend of $0.42 per share paid on January 26, 2018 and a Series A preferred stock dividend of $0.4844 per share paid on January 25, 2018. The Company declared the following dividends on its Series B and Series C Preferred Stock on February 15, 2018 to its stockholders of record as of March 5, 2018:  a Series B Preferred Stock dividend of $0.4844 per share payable on March 27, 2018 and a Series C Preferred Stock dividend of $0.46875 per share payable on March 27, 2018.

*The ratio of annualized total expenses to average equity is calculated as the annualized sum of management fees plus general and administrative expenses divided by average equity. Average equity is calculated based on weighted month-end balance of total equity excluding equity attributable to preferred stockholders.