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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________ 
FORM 10-Q 
_______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-34385
ivr-20200930_g1.jpg
Invesco Mortgage Capital Inc.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Maryland26-2749336
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
1555 Peachtree Street, N.E., Suite 1800,
Atlanta,Georgia30309
(Address of Principal Executive Offices)(Zip Code)
(404) 892-0896
(Registrant’s Telephone Number, Including Area Code) 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareIVRNew York Stock Exchange
7.75% Series A Cumulative Redeemable Preferred StockIVRpANew York Stock Exchange
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock IVRpBNew York Stock Exchange
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock IVRpCNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-Accelerated filer 
  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
As of October 31, 2020, there were 181,375,299 outstanding shares of common stock of Invesco Mortgage Capital Inc.


Table of Contents

INVESCO MORTGAGE CAPITAL INC.
TABLE OF CONTENTS
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Table of Contents

PART I
ITEM 1.     FINANCIAL STATEMENTS
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
As of
 $ in thousands except share amountsSeptember 30, 2020December 31, 2019
ASSETS
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $5,509,166 and $21,132,742, respectively)
5,981,457 21,771,786 
Cash and cash equivalents258,905 172,507 
Restricted cash166,193 116,995 
Due from counterparties4,335 32,568 
Investment related receivable 12,767 67,976 
Derivative assets, at fair value8,402 18,533 
Other assets (including pledged security of $44,654 as of December 31, 2019)
43,936 166,180 
Total assets 6,475,995 22,346,545 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Repurchase agreements5,243,288 17,532,303 
Secured loans 1,650,000 
Derivative liabilities, at fair value391 352 
Dividends payable11,781 74,841 
Investment related payable966 99,561 
Accrued interest payable589 43,998 
Collateral held payable950 170 
Accounts payable and accrued expenses2,198 1,560 
Due to affiliate4,692 11,861 
Total liabilities 5,264,855 19,414,646 
Commitments and contingencies (See Note 14)
Stockholders' 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; 181,375,299 and 144,256,357 shares issued and outstanding, respectively
1,814 1,443 
Additional paid in capital3,314,008 2,892,652 
Accumulated other comprehensive income71,699 288,963 
Retained earnings (distributions in excess of earnings)(2,739,705)(814,483)
Total stockholders’ equity1,211,140 2,931,899 
Total liabilities and stockholders' equity6,475,995 22,346,545 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
$ in thousands, except share amounts2020201920202019
Interest Income
Mortgage-backed and credit risk transfer securities26,907 194,938 242,071 581,167 
Commercial and other loans529 1,353 2,237 4,419 
Total interest income27,436 196,291 244,308 585,586 
Interest Expense
Repurchase agreements (1)
(1,713)112,851 76,059 332,704 
Secured loans297 10,413 8,655 32,815 
Total interest expense(1,416)123,264 84,714 365,519 
Net interest income28,852 73,027 159,594 220,067 
Other Income (loss)
Gain (loss) on investments, net65,106 202,413 (996,743)772,977 
Equity in earnings (losses) of unconsolidated ventures332 403 820 1,797 
Gain (loss) on derivative instruments, net2,886 (177,244)(908,236)(723,437)
Realized and unrealized credit derivative income (loss), net478 1 (35,312)5,447 
Net gain (loss) on extinguishment of debt15,849  14,742  
Other investment income (loss), net402 1,005 1,936 3,041 
Total other income (loss)85,053 26,578 (1,922,793)59,825 
Expenses
Management fee – related party4,111 8,740 24,857 27,644 
General and administrative1,828 1,862 9,009 6,119 
Total expenses5,939 10,602 33,866 33,763 
Net income (loss)107,966 89,003 (1,797,065)246,129 
Dividends to preferred stockholders11,107 11,107 33,320 33,320 
Net income (loss) attributable to common stockholders96,859 77,896 (1,830,385)212,809 
Earnings (loss) per share:
Net income (loss) attributable to common stockholders
Basic0.53 0.57 (10.87)1.66 
Diluted0.53 0.57 (10.87)1.65 
(1)Negative interest expense on repurchase agreements for the three months ended September 30, 2020 consists of $1.5 million of current period interest expense on repurchase agreements and $3.2 million of amortization of net deferred gains on de-designated interest rate swaps. For further information on amortization of amounts classified in accumulated other comprehensive income before we discontinued hedge accounting, see Note 8 - "Derivatives and Hedging Activities" and Note 12 - "Stockholders' Equity".
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended September 30,Nine Months Ended September 30,
$ in thousands2020201920202019
Net income (loss)107,966 89,003 (1,797,065)246,129 
Other comprehensive income (loss):
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net22,812 14,482 (217,064)114,019 
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net(54,615)(954)17,124 9,072 
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense(3,243)(5,981)(17,813)(17,748)
Currency translation adjustments on investment in unconsolidated venture397 290 489 (306)
Total other comprehensive income (loss)(34,649)7,837 (217,264)105,037 
Comprehensive income (loss)73,317 96,840 (2,014,329)351,166 
Less: Dividends to preferred stockholders(11,107)(11,107)(33,320)(33,320)
Comprehensive income (loss) attributable to common stockholders62,210 85,733 (2,047,649)317,846 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 2020; June 30, 2020 and September 30, 2020
(Unaudited)
 
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
$ in thousands except share amountsCommon Stock
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 20195,600,000 135,356 6,200,000 149,860 11,500,000 278,108 144,256,357 1,443 2,892,652 288,963 (814,483)2,931,899 
Cumulative effect of adoption of new accounting principle— — — — — — — — — — 342 342 
Net loss— — — — — — — — — — (1,616,192)(1,616,192)
Other comprehensive loss— — — — — — — — — (159,235)— (159,235)
Proceeds from issuance of common stock, net of offering costs— — — — — — 20,700,000 207 346,819 — — 347,026 
Stock awards— — — — — — 10,000 — — — — — 
Common stock dividends— — — — — — — — — — (82,483)(82,483)
Preferred stock dividends— — — — — — — — — — (11,107)(11,107)
Amortization of equity-based compensation— — — — — — — — 131 — — 131 
Balance at March 31, 20205,600,000 135,356 6,200,000 149,860 11,500,000 278,108 164,966,357 1,650 3,239,602 129,728 (2,523,923)1,410,381 
Net loss— — — — — — — — — — (288,839)(288,839)
Other comprehensive loss— — — — — — — — — (23,380)— (23,380)
Stock awards— — — — — — 22,500 — — — — — 
Common stock dividends— — — — — — 16,338,511 163 74,071 — (3,626)70,608 
Preferred stock dividends— — — — — — — — — — (11,106)(11,106)
Amortization of equity-based compensation— — — — — — — — 128 — — 128 
Balance at June 30, 20205,600,000 135,356 6,200,000 149,860 11,500,000 278,108 181,327,368 1,813 3,313,801 106,348 (2,827,494)1,157,792 
Net income— — — — — — — — — — 107,966 107,966 
Other comprehensive loss— — — — — — — — — (34,649)— (34,649)
Proceeds from issuance of common stock, net of offering costs— — — — — — 25,431  78 — — 78 
Stock awards— — — — — — 22,500 1 — — — 1 
Common stock dividends— — — — — — — — — — (9,070)(9,070)
Preferred stock dividends— — — — — — — — — — (11,107)(11,107)
Amortization of equity-based compensation— — — — — — — — 129 — — 129 
Balance at September 30, 20205,600,000 135,356 6,200,000 149,860 11,500,000 278,108 181,375,299 1,814 3,314,008 71,699 (2,739,705)1,211,140 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
For the three months ended March 31, 2019; June 30, 2019 and September 30, 2019
(Unaudited)
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
$ in thousands except share amountsCommon Stock
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at December 31, 20185,600,000 135,356 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— — — — — — — — — — 138,790 138,790 
Other comprehensive income— — — — — — — — — 56,369 — 56,369 
Proceeds from issuance of common stock, net of offering costs— — — — — — 16,672,000 167 258,386 — — 258,553 
Stock awards— — — — — — 10,501 — — — — — 
Common stock dividends— — — — — — — — — — (57,720)(57,720)
Preferred stock dividends— — — — — — — — — — (11,107)(11,107)
Amortization of equity-based compensation— — — — — — — — 132 — — 132 
Balance at March 31, 20195,600,000 135,356 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, 20195,600,000 135,356 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, 20195,600,000 135,356 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 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  Nine Months Ended September 30,
$ in thousands20202019
Cash Flows from Operating Activities
Net income (loss)(1,797,065)246,129 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net9,821 28,471 
Realized and unrealized (gain) loss on derivative instruments, net919,605 747,186 
Realized and unrealized (gain) loss on credit derivatives, net41,635 10,399 
(Gain) loss on investments, net996,743 (772,977)
(Gain) loss from investments in unconsolidated ventures in excess of distributions received245 (1,797)
Other amortization(17,424)(17,356)
Net (gain) loss on extinguishment of debt(14,742) 
Changes in operating assets and liabilities:
Increase (decrease) in operating assets53,921 (13,578)
Decrease in operating liabilities(49,027)(8,591)
Net cash provided by operating activities143,712 217,886 
Cash Flows from Investing Activities
Purchase of mortgage-backed and credit risk transfer securities(10,515,245)(7,980,486)
(Contributions to) distributions from investments in unconsolidated ventures, net2,267 2,198 
Change in other assets40,846 9,866 
Principal payments from mortgage-backed and credit risk transfer securities730,330 1,392,097 
Proceeds from sale of mortgage-backed and credit risk transfer securities24,265,520 2,387,143 
Payment on the sale of credit derivatives(31,353) 
Settlement (termination) of futures, currency forwards and interest rate swaps, net(909,435)(713,233)
Redemption of Federal Home Loan Bank of Indianapolis stock74,250  
Net change in due from counterparties and collateral held payable on derivative instruments(1,110)(8,909)
Principal payments from commercial loans held-for-investment136 7,394 
Net cash provided by (used in) investing activities13,656,206 (4,903,930)
Cash Flows from Financing Activities
Proceeds from issuance of common stock347,182 486,506 
Principal repayments of secured loans(1,650,000) 
Proceeds from repurchase agreements55,623,982 94,974,385 
Principal repayments of repurchase agreements(67,898,255)(90,504,837)
Net change in due from counterparties and collateral held payable on repurchase agreements30,123 (3,612)
Payments of deferred costs(29)(176)
Payments of dividends (117,325)(195,865)
Net cash provided by (used in) financing activities(13,664,322)4,756,401 
Net change in cash, cash equivalents and restricted cash135,596 70,357 
Cash, cash equivalents and restricted cash, beginning of period289,502 135,617 
Cash, cash equivalents and restricted cash, end of period425,098 205,974 
Supplement Disclosure of Cash Flow Information
Interest paid145,935 391,153 
Non-cash Investing and Financing Activities Information
Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities(199,940)123,091 
Dividends declared not paid11,781 66,974 
Increase (decrease) in Agency CMBS purchase commitments(99,557)1,124,815 
Net change in investment related receivable (payable) excluding Agency CMBS purchase commitments328 (19,598)
Dividend paid in common stock74,234  
Offering costs not paid(78)(468)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Operations
Invesco Mortgage Capital Inc. (the "Company" or "we") is a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities ("MBS") and other mortgage-related assets. 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. ("Invesco"), a leading independent global investment management firm. We conduct our business through IAS Operating Partnership LP (the "Operating Partnership") and have one operating segment.
We have historically invested in:
Residential mortgage-backed securities ("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 Fannie Mae or Freddie Mac (collectively "Agency CMBS");
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");
Residential and commercial mortgage loans; and
Other real estate-related financing agreements.
We elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 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 "Investment Company" definition under the Investment Company Act of 1940.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
Certain disclosures included in our Annual Report on Form 10-K are not required to be included on an interim basis in our quarterly reports on Form 10-Q. We have condensed or omitted these disclosures. Therefore, this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and consolidate the financial statements of the Company and our controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of our financial condition and results of operations for the periods presented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income recognition on mortgage-backed and credit risk transfer securities and allowances for credit losses. Actual results may differ from those estimates.
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Significant Accounting Policies
There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2019 other than as discussed below.
Mortgage-Backed and Credit Risk Transfer Securities
Allowances for Credit Losses on Available-For-Sale Securities
We are not required to measure expected credit losses for situations in which historic credit loss information, adjusted for current conditions and reasonable and supportable forecasts, results in an expectation that nonpayment of the amortized cost basis is zero. We consider our Agency portfolio to have zero loss expectation because (i) there have been no historical credit losses, (ii) full and timely payment of principal and interest is guaranteed by the GSEs and (iii) the yields, while not risk free, generally trade based on prepayment and liquidity risk as opposed to credit risk. Our available-for-sale GSE CRTs are hybrid financial instruments consisting of a debt host contract and an embedded credit derivative. The embedded credit derivative is carried at fair value with changes in fair value reported in earnings.
For non-Agency RMBS and non-Agency CMBS, we use a discounted cash flow method to estimate and recognize an allowance for credit losses. We calculate the allowance for credit losses as the difference between prepayment adjusted contractual cash flows without credit losses and expected cash flows discounted at the effective interest rate used to recognize interest income on the investment. In developing an expectation of credit losses, we use internal models that analyze the loans underlying each investment and evaluate factors including, but not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration. We place reliance on these internal models in determining credit quality.
We record an allowance for credit losses as a contra-asset on the condensed consolidated balance sheets and a provision for credit losses in the condensed consolidated statements of operations. Credit losses are accreted into earnings over time at the effective interest rate used to recognize interest income. Subsequent favorable or adverse changes in the amount of expected credit losses are recognized immediately in earnings. If the allowance for credit losses has been reduced to zero, we reflect the remaining favorable changes as a prospective adjustment to the effective interest rate of the investment. The allowance for credit losses is limited to the amount by which the investment’s amortized cost exceeds fair value. When the allowance for credit losses is limited, the effective interest rate used to recognize interest income and accrete credit losses is prospectively adjusted. We do not record an allowance for credit losses when an investment’s fair value exceeds its amortized cost. Recoveries of amounts previously written off relating to improvements in cash flows are recognized in earnings when received. We record provisions for credit losses, reductions in provisions for credit losses, accretion of credit losses, and recoveries of amounts previously written off within gain (loss) on investments, net in our condensed consolidated statements of operations.
When we determine that we intend to sell, or more likely than not will be required to sell, an available-for-sale security in an unrealized loss position before we recover its amortized cost, we write off any allowance for credit losses and write down the investment’s amortized cost to its fair value. We record the write off of the allowance for credit losses and write down of the available-for-sale security within gain (loss) on investments, net in our condensed consolidated statements of operations.
We present accrued interest receivable separately from our investment portfolio on our condensed consolidated balance sheets. We do not estimate an allowance for credit losses on accrued interest receivable because we write off accrued interest receivable as a reduction to interest income if it is not received when due.
Interest Income Recognition
Mortgage-Backed Securities
Interest income on MBS is accrued based on the outstanding principal or notional balance of the securities and their contractual terms. Premiums or discounts are amortized or accreted into interest income over the life of the investment using the effective interest method.