Richard King - President, Chief Executive Officer John Anzalone - Chief Investment Officer.

Nick Agarwal - Wells Fargo Matthew Freedman - Credit Suisse.

This presentation and comments made in the associated conference call today may include forward-looking statements.

Word such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts, and future conditional verbs such as will, may, could, should and would, as well as any other statement that necessarily depends on future events are intended to identify forward-looking statements.

Forward-looking statements are not guarantees and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations.

We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks identified under the captions Risk Factors, Forward-Looking Statements, and Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K and quarterly reports on Form 10-Q, which are available on the Securities and Exchange Commission’s website at www.sec.gov.

All written or oral forward-looking statements that we make or that are attributable to us are expressly qualified by this cautionary notice. We expressly disclaim any obligation to update the information and any public disclosure if any forward-looking statement later turns out to be inaccurate..

Richard King, Chief Executive Officer; John Anzalone, Chief Investment Officer, and Lee Phegley, Chief Financial Officer. Mr. King, you may now begin..

Good morning, everybody Welcome to the Third Quarter 2014 Invesco Mortgage Capital Earnings Call. Our management team believes we can deliver optimal shareholder value over the long-term by producing a high level of current income to shareholders generated through core earnings and passed along in the form of dividends.

We believe we can deliver book value stability over the long run by managing risk appropriately. We very much like the way we are positioned now having spent 2013 and 2014 advancing our strategic objectives, repositioning the company toward credit and away from interest rate risks.

As shown in the financial highlights on Slide 3 of the presentation, in the third quarter, we earned core earnings per share of $0.44. Over the last three quarters, we reported core earnings of $0.46 in the first quarter, $0.50 in the second quarter and $0.44 now the third quarter.

The third quarter was on the lower end of our core earnings run rate, due to factors such as temporary higher prepay rates in the summer and some drag from things that should improve earnings in the long run like moving assets off of a repo, so that we could collateralized advances and investing the proceeds of the preferred offering.

We currently core running in the middle of the 44 to 50 range and we have reduced risk as well. Our leverage is lower, our interest rate risk is lower as a result of our asset strategy and funding strategy, both of which are much more balanced.

As a result, our book value volatility has been reduced a great deal and our earnings should be more stable going forward. In the second quarter, our book value was down $0.64 per share, about 3% to $19.16 per share.

That due to spread softness primarily in July and August, but this was three quarters of strong book value growth from spread tightening.

As a result, book value per share is still up 6.6% year-to-date and we generated comprehensive income year-to-date of $2.67 per share and an economic return on book value that is dividends plus book value growth, year-to-date through the third quarter, up nearly 15%.

We also made significantly more progress in our strategic objectives on the asset and liability side of the balance sheet. In the table, at the bottom of Page 3, we highlight the shift we have made in our assets. Over the last six quarters, we have reduced 30-year agency MBS from well over half of our assets to less than a quarter.

Total agency mortgages, including hybrid in 15 years now only 37% of our equity capital allocation, and most that is shorter duration MBS. Much of the freed up capital has been redeployed into loan strategy and agency hybrids.

We have maintained momentum putting capital into GSE CRT and commercial real estate mezz and also participating in new loan securitizations. On Page 4, let's take a couple of minutes to look at the investment environment in the third quarter.

Financial conditions tightened on the margin in the quarter as some market participants believe that Fed could be embarking on a tightening cycle at the time soon as the first quarter 2015. We saw some softer credit spreads and slightly higher interest rate volatility.

Stepping back and looking at the big picture, however, economic and financial conditions remained favorable for our business. We took advantage of the widening in CMBS and CRT spreads by issuing preferred stock and using the proceeds to add assets at more favorable ROEs than we have seen all year.

Meanwhile, inflation is showing no signs of increasing. In fact, fears of global deflation seem more pronounced and the stronger dollar and relatively higher rates here in the U.S. are attractive to global investors. Fundamentals are steady in both, residential real estate and commercial real estate.

We expect credit spreads to continue to growing tighter. Meanwhile, our book value has shown little or no correlation to the direction of interest rates, our hedges are working well. Quarter-to-date, our book value is about un-change in the current quarter. The interest rate risk we run is much lower from where it was last year or any time prior.

We like where we are positioned in the book value stability that the positioning provides.

We have increased our capabilities across mortgage markets; we have ample opportunities to deploy capital to the best opportunities whether that is in commercial real estate loans, residential loan packages, CMBS, legacy, RMBS, credit risk transfer or agency MBS. Let's turn to Page 5 and look at the liability side of the balance sheet.

We have done hard work in 2013 and 2014 to diversify funding sources. In the top panel of Page 6, you can see that we continue to find new ways to fund asset purchases. We have issued corporate notes used securitization financing; our insurance sub has utilized secure advances.

In the third quarter, we entered into an additional $625 million of homeowner advances, bringing the total to $1.25 billion of floating rate advances and they all have a 10-year term. This significantly extended our overall average maturity profile. Securitization financing is also growing each quarter.

At quarter end, we have over $2.7 billion of match funded non-recourse asset-backed financing on the balance sheet. Over the last six quarters, we have gone from substantially all of our liabilities being short-term repo like most of the industry to now under three quarters.

Our repo balances have declined by about $4.3 billion now in the past six quarters. Significant diversification in our funding makes us much less reliant on repo financing. We have several ways of investing without need for repo and we have significant capacity to increase our funding. On Page 6, we display a roll-forward of book value in Q3.

In the agency portfolio, our average 30-year mortgage fixed rate coupon is 4.3% and 15-year average coupon is over 4% In the third quarter, higher seasonal prepayment speeds caused dollar prices on our higher coupon portfolio to decline a bit, higher speeds is not a trend. We do not expect speeds to increase further.

In fact, we expect prepay speeds to decline in the fourth quarter and we expect coupon to perform very well in rising interest rate environment. High coupon mortgages have exhibited very little duration. In the credit bucket, CRT spreads widened and CMBS spreads widened in the last quarter, causing most of the modest book value decline.

There was a spike and issuance over the summer in those two spaces. Again, we do not see a trend to wider spread; rather we expect spreads to growing tighter for high quality assets like we are. Our derivatives book improved due to higher rates offsetting the asset declines associated with the rate changes.

We were left with modestly lower book value as a result of the credit spread widening. Again, we are not concerned. Nothing about the decline is permanent. It is a small move down in the context of a broader improvement and we like the opportunity that wider spreads gave us to invest. On the right, you can see two measures of earnings.

We came in on the lower side of core earnings with respect to recent quarters at $0.44 as I mentioned earlier and comprehensive income was slightly negative given the modest book value decline. The factors that drove the third quarter earnings per share somewhat lower are listed on the bottom-right of the page.

In addition to higher speeds, we did have some drag from moving assets off of repo and we also had some drag investing the proceeds of the preferred stock deal, but that one quarter.

Year-to-date core earnings of $1.41 over three quarters, probably gives a better indication of run rate and year-to-date comprehensive income has been strong at $2.60 per share given our stronger book value year-to-date.

We anticipate an environment characterized by low yields and low spread volatility to persist for the remainder of the year and well into 2015. I will now turn it over to John Anzalone, our CIO to talk about our investment strategy..

Thanks, Rich. Thanks, again, to everyone joining us on the call today. I will start on Slide 7, with the portfolio update. As you can see on the chart, we continue to make great progress toward our goal of reducing IVR's exposure to interest rate risk and increasing our exposure to high quality credit.

In fact, agencies now make up less than 50% of our total assets and our exposure to longer duration, lower coupon agencies is under 12%. While wider spreads on credit have negatively impacted book value, the flipside is that spread volatility creates buying opportunities.

We took advantage of those opportunities by increasing our exposure the legacy non-agencies, credit risk transfer bonds and senior classes and CMBS. We closed two more jumbo prime securitizations during the quarter and expect to close two more in the fourth quarter.

We also closed two more CRE loans during the third quarter and expect to make additional investments in that space during the fourth quarter. These moves has left us with a very manageable interest rate exposure with our duration GAAP in a half year range while the empirical duration has been very close to zero.

Over the course of the past few quarters, our book value has shown almost no correlation to rates. With fundamentals continuing to look at in both, the residential and commercial spaces, we very much prefer to put money to work in newly issued well-underwritten credit assets.

Let's take a look closer look at each sector starting with agencies on Slide 8. The bar chart on the upper-right of Slide 8, gives us a very good depiction of the evolution of our agency book. Hybrid arms now make up nearly a third of the book, up from less than 10% a year ago.

Less than a quarter of our agencies are in lower coupons, defined as 4s and under. The average coupon of our 30-year collateral is 4.3%. We are similarly upping coupon in 50-year agencies, where the average coupon is just over 4. Our fixed rate agency portfolio is a well seasoned, higher coupon, specified pool portfolio.

They should be well insulated from any increase in prepayment that might occur due to the recent drop in rates. Even if we do see some pick up in refinancing activity, we expect the winter seasonal will kick in and that the overall prepayment environment will remain benign.

Our outlook for agency spreads is also benign as we see relatively tight valuations balanced by a variable supply/demand picture. Let's move to Slide 9, residential credit. Between non-agency bonds, credit risk transfer and residential loans, residential credit now makes up 34% of our assets, up from about a quarter of our assets a year ago.

This quarter, we took advantage of wider spreads in the re-performing market by adding well enhanced short cash flows to the portfolio. The two jumbo prime securitizations added $847 million of loans to our portfolio during the quarter. We expect to close two more in the fourth quarter.

Performance here remained stellar with still no loans 60 or more days delinquent. Finally, in GSE risk transfer bonds, we took advantage of the recent spread volatility in that space by continuing to add to our position. Our exposure to those bonds increased by just over $100 million during the quarter.

While these bonds have experienced a fair amount of spread volatility lately, we are still very comfortable with the underlying credit fundamentals and the cash flow ROE remains very attractive. Finally, let's take a look at commercial credit on Slide 10.

We continue to increase our CMBS positions during the quarter, adding over $400 million high-quality AA and AAA bonds that were financed by the Federal Home Loan Banks to our captive insurance subsidiary. These purchases serve to increase the overall average credit quality of our CMBS holdings.

In fact, since March, we have purchased over $1 billion new issue AA and AAAs and these now present over 25% of our CMBS holdings. Additionally, we closed a pair of commercial real estate loans totaling $48 million, including our first cross-border transaction.

As of quarter end, our holdings in CRE loans and mezzanine certificates and joint venture interest totaled $235 million. With commercial real estate fundamentals remaining favorable, we expect moderate and opportunistic growth in CRE lending. That brings us to the end of our prepared remarks. Please open the floor for questions..

(Operator Instructions).

Operator do you have any questions in the queue?.

The first question is from Nick Agarwal from Wells Fargo..

Good morning, guys. Thanks for taking my questions. I was curious; you guys have done a good job shifting the investment portfolio more towards the credit side, and as we continue to see slower HPA. I was just curious on your thoughts if we continue to see that incur.

If we went to zero or negative, what would be sort of your philosophy towards that asset class?.

Okay. First of all just on home prices, you know, we have been saying all year long that we expected the year-over-year rate to be 5% this year and that is about where we are and we really believe that home prices are going to continue to increase in mid-single-digit kind of range.

There really aren't conditions existing that would drive home prices lower as [owners] plan homes affordability high. There is still some positive momentum in prices. Having said that, I mean, we have obviously a great deal of flexibility in terms of our portfolio and our ability to move assets around.

If we believed home prices were going to falling, we certainly would reduce holdings and mortgage credit..

Yes. I would add that, I mean, the quality of the underwriting that is happening right now is extremely high, so even if we saw a modest decline in HPA, I think, we are pretty comfortable that our collateral will hold up against that. It's not like it was in 2006 or 2005 or something like that..

Sure. Okay. Then I think in the past, you had targeted about 25% of your equity capital in various silo strategies.

Can you give me sense of where you are in the equity allocation?.

Right. I would say, our target might be a little too strong of a word. We kind of put some upper limits on where we would go and in various sectors, especially the newer initiatives, but we are very happy with where the portfolio is positioned. The point was to find the best risk-adjusted returns. I think, we believe we are positioned very well.

We continue to look for opportunities in CRE loans and the risk sharing space and securitization of single-family residential, non-agency. You know, we don't have absolute targets. We are really just deploying capital where we see the best opportunities. At present, we have recently seen the best opportunities in the CMBS space and the GSC CRT space..

Okay. Lastly, I thought that you mentioned that you did two jumbo transactions. I think that was up from one and the size seems to be increasing. Is that sort of the size that you did in third quarter? What you expect in the fourth quarter. Then, also what you think is driving the increase. Is it spreads better or the banks pull back a little bit.

Can you give me sense of what is happening there?.

Yes. In the third quarter, we did consolidate two deals. We expect to participate in two deals in the fourth quarter as well and close two.

The spreads in that market widened out a bit, especially on thirty-year collateral maybe a 0.5 point, so that may slow things down a little bit, because you did have all throughout 2014 spreads on non-agency or tightening versus agency. On the hybrid space, where we have done more recent deals, you really haven't seen much change in pricing..

Okay.

Then the size that you are expecting is roughly the same of third quarter or is that more along the size of the second quarter?.

I think it is about the same size..

It is in the ballpark..

Okay. All right, guys, thank you..

The next question is from Douglas Harter from Credit Suisse..

Hi. This is Matthew Freedman calling in for Doug Harter. I was wondering if the capital from the preferred stock has been fully redeployed..

Yes..

Thank you..

(Operator Instructions) So far there are no further questions..

Okay, operator. We will stop there. I just want to thank everybody for listening today..

That concludes today's conference. Please disconnect at this time..