ATLANTA, Aug. 7, 2019 /PRNewswire/ -- Invesco
Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced
financial results for the quarter ended June 30, 2019.
Financial Summary:
- Q2 2019 net income attributable to common stockholders of
$7.2 million or $0.06 basic income per common share compared to
net income attributable to common stockholders of $127.7 million or $1.05 basic income per common share in Q1
2019
- Q2 2019 core earnings*** of $59.1
million or core earnings per common share ("EPS") of
$0.46 compared to $56.9 million or core EPS of $0.47 in Q1 2019
- Q2 2019 book value per common share* of $16.21 compared to $16.29 at Q1 2019
- Q2 2019 common stock dividend of $0.45 per share compared to $0.45 in Q1 2019
- Economic return** of 2.3% for Q2 2019 and 12.0% for the year to
date ended June 30, 2019
"We are pleased to announce core earnings of $0.46 per common share for the second quarter of
2019. Core earnings exceeded our $0.45 dividend, as the portfolio benefited from
the full quarter impact of our February common stock offering.
Despite volatile market conditions during the quarter, our
diversified portfolio and dynamic hedging strategy combined to keep
our book value relatively stable at $16.21. This helped produce a 2.3% economic
return for the quarter, bringing our year-to-date economic return
to 12.0%." said John Anzalone, Chief
Executive Officer.
*
|
Book value per common
share is calculated as total equity less the liquidation preference
of 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.
|
**
|
Economic return for
the quarter ended June 30, 2019 is defined as the change in
book value per common share from March 31, 2019 to
June 30, 2019 of $(0.08); plus dividends declared of $0.45 per
common share; divided by the March 31, 2019 book value per
common share of $16.29. Economic return for the year to date ended
June 30, 2019 is defined as the change in book value per
common share from December 31, 2018 to June 30, 2019 of
$0.94; plus dividends declared of $0.90 per common share; divided
by the December 31, 2018 book value per common share of
$15.27.
|
***
|
Core earnings (and by
calculation, core earnings per common share) are non-Generally
Accepted Accounting Principles ("GAAP") financial measures. Refer
to the section entitled "Non-GAAP Financial Measures" for important
disclosures and a reconciliation to the most comparable U.S. GAAP
measures.
|
Key performance indicators for the quarters ended June 30,
2019 and March 31, 2019 are summarized in the table below.
($ in millions,
except share amounts)
|
Q2 '19
|
Q1 '19
|
Variance
|
Average
Balances
|
(unaudited)
|
(unaudited)
|
|
Average earning
assets (at amortized cost)
|
$20,803.2
|
|
$19,152.5
|
|
$1,650.7
|
|
Average
borrowings
|
$18,908.9
|
|
$17,048.1
|
|
$1,860.8
|
|
Average
equity
|
$2,338.0
|
|
$2,207.3
|
|
$130.7
|
|
|
|
|
|
U.S. GAAP
Financial Measures
|
|
|
|
Total interest
income
|
$202.2
|
|
$187.1
|
|
$15.1
|
|
Total interest
expense
|
$129.2
|
|
$113.0
|
|
$16.2
|
|
Net interest
income
|
$73.0
|
|
$74.1
|
|
($1.1)
|
|
Total
expenses
|
$11.4
|
|
$11.8
|
|
($0.4)
|
|
Net income
attributable to common stockholders
|
$7.2
|
|
$127.7
|
|
($120.5)
|
|
|
|
|
|
Average earning asset
yields
|
3.89
|
%
|
3.91
|
%
|
(0.02)
|
%
|
Average cost of
funds
|
2.73
|
%
|
2.65
|
%
|
0.08
|
%
|
Average net interest
rate margin
|
1.16
|
%
|
1.26
|
%
|
(0.10)
|
%
|
|
|
|
|
Period-end weighted
average asset yields*
|
4.03
|
%
|
4.02
|
%
|
0.01
|
%
|
Period-end weighted
average cost of funds
|
2.77
|
%
|
2.84
|
%
|
(0.07)
|
%
|
Period-end weighted
average net interest rate margin
|
1.26
|
%
|
1.18
|
%
|
0.08
|
%
|
|
|
|
|
Book value per common
share**
|
$16.21
|
|
$16.29
|
|
($0.08)
|
|
Earnings per common
share (basic)
|
$0.06
|
|
$1.05
|
|
($0.99)
|
|
Earnings per common
share (diluted)
|
$0.06
|
|
$1.05
|
|
($0.99)
|
|
Debt-to-equity
ratio
|
7.0
|
x
|
6.9
|
x
|
0.1
|
x
|
|
|
|
|
Non-GAAP Financial
Measures***
|
|
|
|
Core
earnings
|
$59.1
|
|
$56.9
|
|
$2.2
|
|
Effective interest
income
|
$207.5
|
|
$192.4
|
|
$15.1
|
|
Effective interest
expense
|
$127.6
|
|
$114.4
|
|
$13.2
|
|
Effective net
interest income
|
$79.9
|
|
$78.1
|
|
$1.8
|
|
|
|
|
|
Effective
yield
|
3.99
|
%
|
4.02
|
%
|
(0.03)
|
%
|
Effective cost of
funds
|
2.70
|
%
|
2.68
|
%
|
0.02
|
%
|
Effective interest
rate margin
|
1.29
|
%
|
1.34
|
%
|
(0.05)
|
%
|
|
|
|
|
Core earnings per
common share
|
$0.46
|
|
$0.47
|
|
($0.01)
|
|
Repurchase agreement
debt-to-equity ratio
|
7.4
|
x
|
7.2
|
x
|
0.2
|
x
|
|
|
*
|
Period-end weighted
average yields are based on amortized cost as of period end and
incorporate future prepayment and loss assumptions.
|
**
|
Book value per common
share is calculated as total equity less the liquidation preference
of 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.
|
***
|
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
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 second
quarter of 2019 was $7.2 million
compared to $127.7 million for the
first quarter of 2019. Net income attributable to common
stockholders was $120.5 million lower
in the second quarter primarily due to higher net losses on
derivatives totaling $347.2 million
compared to $193.6 million in the
first quarter. Net losses on derivatives were partially offset by
higher net gains on investments totaling $302.2 million in the second quarter compared to
$268.4 million in the first quarter.
Higher net losses on derivative instruments and net gains on
investments were driven by sharply declining interest rates in the
second quarter as evidenced by the 40 basis point decline in 10
year Treasury rates compared to a 28 basis point decline in the
first quarter. The Company also had unrealized gains on
available-for-sale investments of $52.3
million in the first quarter and $47.2 million in the second quarter that are
recorded in other comprehensive income.
Book value per common share for the second quarter of 2019 was
$16.21 compared to $16.29 in the first quarter reflecting interest
rate spread widening in Agency RMBS and GSE CRT assets that was
partially offset by a positive duration gap and interest rate
spread tightening in other asset classes.
During the second quarter of 2019, the Company generated
$59.1 million in core earnings, an
increase of $2.2 million or 3.9% from
the first quarter of 2019. Higher core earnings were driven by a
$1.8 million increase in effective
net interest income reflecting the full quarter impact of the
Company's February 2019 common stock
offering. Effective yield was 3.99% during the second quarter, down
3 basis points from 4.02% in the first quarter of 2019 primarily
due to the impact of declining interest rates on prepayments of
specified pool Agency RMBS investments. Effective cost of funds was
2.70% during the second quarter, up 2 basis points from 2.68% in
the first quarter of 2019 primarily due to slightly higher
repurchase agreement borrowing costs early in the quarter.
Total interest income for the second quarter of 2019 was
$202.2 million compared to
$187.1 million for the first quarter
of 2019. Higher total interest income reflects a $1.7 billion (8.6%) increase in average earning
assets to $20.8 billion from
$19.2 billion in the first quarter of
2019. Average earning assets rose primarily due to the investment
of net proceeds from the Company's February common stock offering.
Average earning asset yield was 3.89% for the second quarter of
2019 compared to 3.91% in the first quarter of 2019 reflecting a
$6.8 million increase in premium
amortization.
The Company increased its average borrowings by $1.9 billion (10.9%) in the second quarter of
2019 to $18.9 billion to finance its
higher asset base compared to average borrowings of $17.0 billion in the first quarter of 2019. Total
interest expense was $129.2 million
compared to $113.0 million during the
first quarter of 2019.
The Company's debt-to-equity ratio was 7.0x as of June 30,
2019 compared to 6.9x as of March 31, 2019. The Company's
repurchase agreement debt-to-equity ratio was 7.4x as of
June 30, 2019 compared to 7.2x as of March 31, 2019.
Leverage increased slightly during the quarter largely due to an
increase in the Company's equity allocation to Agency CMBS to
10%.
Total expenses for the second quarter of 2019 were approximately
$11.4 million compared to
$11.8 million for the first quarter
of 2019. Total expenses include management fees and general and
administrative expenses. The ratio of annualized total expenses to
average equity (1) decreased to 1.95% compared to 2.14%
for the first quarter of 2019.
As previously announced, the Company declared the following
dividends on June 17, 2019: a common stock dividend of
$0.45 per share paid on July 26,
2019 to its stockholders of record as of June 28, 2019 and a Series A preferred stock
dividend of $0.4844 per share paid on
July 25, 2019 to its stockholders of record as of July 1, 2019. The Company declared the following
dividends on its Series B and Series C Preferred Stock on
August 1, 2019 to its stockholders of
record as of September 5, 2019: a
Series B Preferred Stock dividend of $0.4844 per share payable on September 27, 2019 and a Series C Preferred Stock
dividend of $0.46875 per share
payable on September 27, 2019.
(1)
|
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 the weighted month-end balance of total equity excluding
equity attributable to preferred stockholders.
|
About Invesco Mortgage Capital Inc.
Invesco Mortgage Capital Inc. is a real estate investment trust
that primarily focuses on investing in, financing and managing
residential and commercial mortgage-backed securities and mortgage
loans. Invesco Mortgage Capital Inc. is externally managed and
advised by Invesco Advisers, Inc., a registered investment adviser
and an indirect, wholly-owned subsidiary of Invesco Ltd., a leading
independent global investment management firm.
Earnings Call
Members of the investment community and the general public are
invited to listen to the Company's earnings conference call on
Thursday, August 8, 2019, at
9:00 a.m. ET, by calling one of the
following numbers:
North America Toll Free: 800-857-7465
International: 1-312-470-0052
Passcode: Invesco
An audio replay will be available until 5:00 pm ET on August 22,
2019 by calling:
800-430-5973 (North America) or
1-402-998-0105 (International).
The presentation slides that will be reviewed during the call
will be available on the Company's website at
www.invescomortgagecapital.com.
Cautionary Notice Regarding Forward-Looking
Statements
This press release, the related presentation and comments made
in the associated conference call, may include statements and
information that constitute "forward-looking statements" within the
meaning of the U.S. securities laws as defined in the Private
Securities Litigation Reform Act of 1995, and such statements are
intended to be covered by the safe harbor provided by the same.
Forward-looking statements include our views on the risk
positioning of our portfolio, domestic and global market conditions
(including the residential and commercial real estate market), the
market for our target assets, our financial performance, including
our core earnings, economic return, comprehensive income and
changes in our book value, our ability to continue performance
trends, the stability of portfolio yields, interest rates, credit
spreads, prepayment trends, financing sources, cost of funds, our
leverage and equity allocation. In addition, words such as
"believes," "expects," "anticipates," "intends," "plans,"
"estimates," "projects," "forecasts," and future or 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 Condition 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 in any public disclosure if any forward-looking
statement later turns out to be inaccurate.
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in thousands,
except share amounts
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
credit risk transfer securities (1)
|
200,737
|
|
|
185,492
|
|
|
147,548
|
|
|
386,229
|
|
|
296,551
|
|
Commercial and other
loans
|
1,484
|
|
|
1,582
|
|
|
4,051
|
|
|
3,066
|
|
|
8,273
|
|
Total interest
income
|
202,221
|
|
|
187,074
|
|
|
151,599
|
|
|
389,295
|
|
|
304,824
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
117,978
|
|
|
101,875
|
|
|
69,389
|
|
|
219,853
|
|
|
128,974
|
|
Secured
loans
|
11,258
|
|
|
11,144
|
|
|
8,471
|
|
|
22,402
|
|
|
15,398
|
|
Exchangeable senior
notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,621
|
|
Total interest
expense
|
129,236
|
|
|
113,019
|
|
|
77,860
|
|
|
242,255
|
|
|
145,993
|
|
Net interest
income
|
72,985
|
|
|
74,055
|
|
|
73,739
|
|
|
147,040
|
|
|
158,831
|
|
Other Income
(loss)
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
investments, net
|
302,182
|
|
|
268,382
|
|
|
(36,377)
|
|
|
570,564
|
|
|
(196,747)
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
702
|
|
|
692
|
|
|
798
|
|
|
1,394
|
|
|
1,694
|
|
Gain (loss) on
derivative instruments, net
|
(344,733)
|
|
|
(201,460)
|
|
|
67,169
|
|
|
(546,193)
|
|
|
200,536
|
|
Realized and
unrealized credit derivative income (loss), net
|
(2,438)
|
|
|
7,884
|
|
|
735
|
|
|
5,446
|
|
|
3,900
|
|
Net loss on
extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26)
|
|
Other investment
income (loss), net
|
1,007
|
|
|
1,029
|
|
|
(2,160)
|
|
|
2,036
|
|
|
942
|
|
Total other income
(loss)
|
(43,280)
|
|
|
76,527
|
|
|
30,165
|
|
|
33,247
|
|
|
10,299
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Management fee –
related party
|
9,370
|
|
|
9,534
|
|
|
10,102
|
|
|
18,904
|
|
|
20,323
|
|
General and
administrative
|
1,999
|
|
|
2,258
|
|
|
1,525
|
|
|
4,257
|
|
|
3,281
|
|
Total
expenses
|
11,369
|
|
|
11,792
|
|
|
11,627
|
|
|
23,161
|
|
|
23,604
|
|
Net income
|
18,336
|
|
|
138,790
|
|
|
92,277
|
|
|
157,126
|
|
|
145,526
|
|
Net income
attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
1,163
|
|
|
—
|
|
|
1,834
|
|
Net income
attributable to Invesco Mortgage Capital Inc.
|
18,336
|
|
|
138,790
|
|
|
91,114
|
|
|
157,126
|
|
|
143,692
|
|
Dividends to
preferred stockholders
|
11,106
|
|
|
11,107
|
|
|
11,106
|
|
|
22,213
|
|
|
22,213
|
|
Net income
attributable to common stockholders
|
7,230
|
|
|
127,683
|
|
|
80,008
|
|
|
134,913
|
|
|
121,479
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
Basic
|
0.06
|
|
|
1.05
|
|
|
0.72
|
|
|
1.08
|
|
|
1.09
|
|
Diluted
|
0.06
|
|
|
1.05
|
|
|
0.72
|
|
|
1.08
|
|
|
1.08
|
|
|
(1) The table
below shows the components of mortgage-backed and credit risk
transfer securities income for the periods presented.
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Coupon
interest
|
214,501
|
|
|
192,442
|
|
|
164,165
|
|
|
406,943
|
|
|
330,484
|
|
Net premium
amortization
|
(13,764)
|
|
|
(6,950)
|
|
|
(16,617)
|
|
|
(20,714)
|
|
|
(33,933)
|
|
Mortgage-backed and
credit risk transfer securities interest
income
|
200,737
|
|
|
185,492
|
|
|
147,548
|
|
|
386,229
|
|
|
296,551
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Net income
|
18,336
|
|
|
138,790
|
|
|
92,277
|
|
|
157,126
|
|
|
145,526
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on mortgage-backed
and credit risk transfer securities, net
|
47,188
|
|
|
52,349
|
|
|
(47,929)
|
|
|
99,537
|
|
|
(180,246)
|
|
Reclassification of
unrealized (gain) loss on
sale of mortgage-backed and credit risk
transfer securities to gain (loss) on
investments, net
|
(121)
|
|
|
10,147
|
|
|
9,889
|
|
|
10,026
|
|
|
19,126
|
|
Reclassification of
amortization of net
deferred (gain) loss on de-designated interest
rate swaps to repurchase agreements interest
expense
|
(5,916)
|
|
|
(5,851)
|
|
|
(6,898)
|
|
|
(11,767)
|
|
|
(13,437)
|
|
Currency translation
adjustments on
investment in unconsolidated venture
|
(320)
|
|
|
(276)
|
|
|
486
|
|
|
(596)
|
|
|
798
|
|
Total other
comprehensive income (loss)
|
40,831
|
|
|
56,369
|
|
|
(44,452)
|
|
|
97,200
|
|
|
(173,759)
|
|
Comprehensive income
(loss)
|
59,167
|
|
|
195,159
|
|
|
47,825
|
|
|
254,326
|
|
|
(28,233)
|
|
Less: Comprehensive
(income) loss
attributable to non-controlling interest
|
—
|
|
|
—
|
|
|
(602)
|
|
|
—
|
|
|
357
|
|
Less: Dividends to
preferred stockholders
|
(11,106)
|
|
|
(11,107)
|
|
|
(11,106)
|
|
|
(22,213)
|
|
|
(22,213)
|
|
Comprehensive income
(loss) attributable to common
stockholders
|
48,061
|
|
|
184,052
|
|
|
36,117
|
|
|
232,113
|
|
|
(50,089)
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
As
of
|
$ in
thousands except share amounts
|
June 30,
2019
|
|
December 31,
2018
|
ASSETS
|
|
Mortgage-backed and
credit risk transfer securities, at fair value (including pledged
securities of
$20,848,269 and $17,082,825, respectively)
|
21,536,047
|
|
|
17,396,642
|
|
Cash and cash
equivalents
|
99,620
|
|
|
135,617
|
|
Restricted
cash
|
55,271
|
|
|
—
|
|
Due from
counterparties
|
21,041
|
|
|
13,500
|
|
Investment related
receivable
|
141,989
|
|
|
66,598
|
|
Derivative assets, at
fair value
|
10,067
|
|
|
15,089
|
|
Other
assets
|
174,043
|
|
|
186,059
|
|
Total
assets
|
22,038,078
|
|
|
17,813,505
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Repurchase
agreements
|
17,075,065
|
|
|
13,602,484
|
|
Secured
loans
|
1,650,000
|
|
|
1,650,000
|
|
Derivative
liabilities, at fair value
|
36,969
|
|
|
23,390
|
|
Dividends and
distributions payable
|
60,671
|
|
|
49,578
|
|
Investment related
payable
|
462,060
|
|
|
132,096
|
|
Accrued interest
payable
|
55,002
|
|
|
37,620
|
|
Collateral held
payable
|
14,939
|
|
|
18,083
|
|
Accounts payable and
accrued expenses
|
3,144
|
|
|
1,694
|
|
Due to
affiliate
|
10,127
|
|
|
11,863
|
|
Total
liabilities
|
19,367,977
|
|
|
15,526,808
|
|
Commitments and
contingencies (See Note 14) (1):
|
|
|
|
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; 128,795,528
and
111,584,996 shares issued and
outstanding, respectively
|
1,287
|
|
|
1,115
|
|
Additional paid in
capital
|
2,650,329
|
|
|
2,383,532
|
|
Accumulated other
comprehensive income
|
318,013
|
|
|
220,813
|
|
Retained earnings
(distributions in excess of earnings)
|
(862,852)
|
|
|
(882,087)
|
|
Total stockholders'
equity
|
2,670,101
|
|
|
2,286,697
|
|
Total liabilities and
stockholders' equity
|
22,038,078
|
|
|
17,813,505
|
|
|
|
(1)
|
See Note 14 of the
Company's condensed consolidated financial statements filed in Item
1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2019.
|
Non-GAAP Financial Measures
The Company uses the following non-GAAP financial measures to
analyze its operating results and believes these financial measures
are useful to investors in assessing the Company's performance as
further discussed below:
- 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.
The most directly comparable U.S. GAAP measures are:
- net income (loss) attributable to common stockholders (and by
calculation, basic earnings (loss) per common share),
- total interest income (and by calculation, 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.
The non-GAAP financial measures used by the Company's management
should be analyzed in conjunction with U.S. GAAP financial measures
and should not be considered substitutes for U.S. GAAP financial
measures. In addition, the non-GAAP financial measures may not be
comparable to similarly titled non-GAAP financial measures of its
peer companies.
Core Earnings
The Company calculates core earnings as U.S. GAAP net income
(loss) attributable to common stockholders adjusted for (gain) loss
on investments, net; realized (gain) loss on derivative
instruments, net; unrealized (gain) loss on derivative instruments,
net; realized and unrealized (gain) loss on GSE CRT embedded
derivatives, net; (gain) loss on foreign currency transactions,
net; amortization of net deferred (gain) loss on de-designated
interest rate swaps; net loss on extinguishment of debt; and
cumulative adjustments attributable to non-controlling interest.
The Company may add and has added additional reconciling items to
its core earnings calculation as appropriate.
The Company believes the presentation of core earnings provides
a consistent measure of operating performance by excluding the
impact of gains and losses described above from operating results.
The Company excludes the impact of gains and losses because gains
and losses are not accounted for consistently under U.S. GAAP.
Under U.S. GAAP, certain gains and losses are reflected in net
income whereas other gains and losses are reflected in other
comprehensive income. For example, a portion of the Company's
mortgage-backed securities are classified as available-for-sale
securities, and changes in the valuation of these securities are
recorded in other comprehensive income on its condensed
consolidated balance sheet. The Company elected the fair value
option for its mortgage-backed securities purchased on or after
September 1, 2016, and changes in the
valuation of these securities are recorded in other income (loss)
in the condensed consolidated statement of operations. In addition,
certain gains and losses represent one-time events.
The Company believes that providing transparency into core
earnings enables its investors to consistently measure, evaluate
and compare its operating performance to that of its peers over
multiple reporting periods. However, the Company cautions that core
earnings should not be considered as an alternative to net income
(determined in accordance with U.S. GAAP), or as an indication of
the Company's cash flow from operating activities (determined in
accordance with U.S. GAAP), a measure of the Company's liquidity,
or an indication of amounts available to fund its cash needs,
including its ability to make cash distributions.
The table below provides a reconciliation of U.S. GAAP net
income (loss) attributable to common stockholders to core earnings
for the following periods:
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in thousands,
except per share data
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Net income
attributable to common stockholders
|
7,230
|
|
|
127,683
|
|
|
80,008
|
|
|
134,913
|
|
|
121,479
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
(Gain) loss on
investments, net
|
(302,182)
|
|
|
(268,382)
|
|
|
36,377
|
|
|
(570,564)
|
|
|
196,747
|
|
Realized (gain) loss
on derivative instruments, net (1)
|
307,239
|
|
|
232,387
|
|
|
(36,274)
|
|
|
539,626
|
|
|
(149,852)
|
|
Unrealized (gain)
loss on derivative instruments, net (1)
|
45,019
|
|
|
(26,418)
|
|
|
(35,406)
|
|
|
18,601
|
|
|
(67,307)
|
|
Realized and
unrealized (gain) loss on GSE CRT
embedded derivatives, net (2)
|
7,738
|
|
|
(2,534)
|
|
|
4,903
|
|
|
5,204
|
|
|
7,371
|
|
Loss on foreign
currency transactions, net (3)
|
—
|
|
|
—
|
|
|
2,966
|
|
|
—
|
|
|
1,152
|
|
Amortization of net
deferred (gain) loss on
de-designated interest rate swaps (4)
|
(5,916)
|
|
|
(5,851)
|
|
|
(6,898)
|
|
|
(11,767)
|
|
|
(13,437)
|
|
Net loss on
extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
Subtotal
|
51,898
|
|
|
(70,798)
|
|
|
(34,332)
|
|
|
(18,900)
|
|
|
(25,300)
|
|
Cumulative
adjustments attributable to non-
controlling interest
|
—
|
|
|
—
|
|
|
432
|
|
|
—
|
|
|
318
|
|
Core earnings
attributable to common stockholders
|
59,128
|
|
|
56,885
|
|
|
46,108
|
|
|
116,013
|
|
|
96,497
|
|
Basic income per
common share
|
0.06
|
|
|
1.05
|
|
|
0.72
|
|
|
1.08
|
|
|
1.09
|
|
Core earnings per
share attributable to common
stockholders (5)
|
0.46
|
|
|
0.47
|
|
|
0.41
|
|
|
0.93
|
|
|
0.86
|
|
|
(1) U.S. GAAP gain
(loss) on derivative instruments, net on the condensed consolidated
statements of operations includes the following
components:
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Realized gain (loss)
on derivative instruments, net
|
(307,239)
|
|
|
(232,387)
|
|
|
36,274
|
|
|
(539,626)
|
|
|
149,852
|
|
Unrealized gain
(loss) on derivative instruments, net
|
(45,019)
|
|
|
26,418
|
|
|
35,406
|
|
|
(18,601)
|
|
|
67,307
|
|
Contractual net
interest income (expense) on interest
rate swaps
|
7,525
|
|
|
4,509
|
|
|
(4,511)
|
|
|
12,034
|
|
|
(16,623)
|
|
Gain (loss) on
derivative instruments, net
|
(344,733)
|
|
|
(201,460)
|
|
|
67,169
|
|
|
(546,193)
|
|
|
200,536
|
|
|
(2) U.S. GAAP
realized and unrealized credit derivative income (loss), net on the
condensed consolidated statements of operations includes
the
following components:
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Realized and
unrealized gain (loss) on GSE CRT
embedded derivatives, net
|
(7,738)
|
|
|
2,534
|
|
|
(4,903)
|
|
|
(5,204)
|
|
|
(7,371)
|
|
GSE CRT embedded
derivative coupon interest
|
5,300
|
|
|
5,350
|
|
|
5,638
|
|
|
10,650
|
|
|
11,271
|
|
Realized and
unrealized credit derivative income
(loss), net
|
(2,438)
|
|
|
7,884
|
|
|
735
|
|
|
5,446
|
|
|
3,900
|
|
|
(3) U.S. GAAP other
investment income (loss), net on the condensed consolidated
statements of operations includes the following
components:
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Dividend
income
|
1,007
|
|
|
1,029
|
|
|
806
|
|
|
2,036
|
|
|
2,094
|
|
Loss on foreign
currency transactions, net
|
—
|
|
|
—
|
|
|
(2,966)
|
|
|
—
|
|
|
(1,152)
|
|
Other investment
income (loss), net
|
1,007
|
|
|
1,029
|
|
|
(2,160)
|
|
|
2,036
|
|
|
942
|
|
|
(4) U.S. GAAP
repurchase agreements interest expense on the condensed
consolidated statements of operations includes the following
components:
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Interest expense on
repurchase agreement
borrowings
|
123,894
|
|
|
107,726
|
|
|
76,287
|
|
|
231,620
|
|
|
142,411
|
|
Amortization of net
deferred (gain) loss on
de-designated interest rate swaps
|
(5,916)
|
|
|
(5,851)
|
|
|
(6,898)
|
|
|
(11,767)
|
|
|
(13,437)
|
|
Repurchase agreements
interest expense
|
117,978
|
|
|
101,875
|
|
|
69,389
|
|
|
219,853
|
|
|
128,974
|
|
|
(5) Core earnings per
share attributable to common stockholders is equal to core earnings
divided by the basic weighted
average number of common shares
outstanding.
|
|
The
components of core income for the three and six months ended June
30, 2019 are:
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Effective net
interest income(1)
|
79,894
|
|
|
78,063
|
|
|
67,968
|
|
|
157,957
|
|
|
140,041
|
|
Dividend
income
|
1,007
|
|
|
1,029
|
|
|
806
|
|
|
2,036
|
|
|
2,094
|
|
Equity in earnings
(losses) of unconsolidated
ventures
|
702
|
|
|
692
|
|
|
798
|
|
|
1,394
|
|
|
1,694
|
|
Total
expenses
|
(11,369)
|
|
|
(11,792)
|
|
|
(11,627)
|
|
|
(23,161)
|
|
|
(23,604)
|
|
Total core
earnings
|
70,234
|
|
|
67,992
|
|
|
57,945
|
|
|
138,226
|
|
|
120,225
|
|
Dividends to
preferred stockholders
|
(11,106)
|
|
|
(11,107)
|
|
|
(11,106)
|
|
|
(22,213)
|
|
|
(22,213)
|
|
Core earnings
attributable to non-controlling
interest
|
—
|
|
|
—
|
|
|
(731)
|
|
|
—
|
|
|
(1,515)
|
|
Core earnings
attributable to common stockholders
|
59,128
|
|
|
56,885
|
|
|
46,108
|
|
|
116,013
|
|
|
96,497
|
|
|
(1) See below
for a reconciliation of net interest income to effective net
interest income, a non-GAAP measure.
|
Effective Interest Income/ Effective Yield/ Effective
Interest Expense/Effective Cost of Funds/Effective Net Interest
Income/Effective Interest Rate Margin
The Company calculates effective interest income (and by
calculation, effective yield) as U.S. GAAP total interest income
adjusted for GSE CRT embedded derivative coupon interest that is
recorded as realized and unrealized credit derivative income
(loss), net. The Company includes its GSE CRT embedded derivative
coupon interest in effective interest income because GSE CRT coupon
interest is not accounted for consistently under U.S. GAAP. The
Company accounts for GSE CRTs purchased prior to August 24, 2015 as hybrid financial instruments,
but has elected the fair value option for GSE CRTs purchased on or
after August 24, 2015. Under U.S.
GAAP, coupon interest on GSE CRTs accounted for using the fair
value option is recorded as interest income, whereas coupon
interest on GSE CRTs accounted for as hybrid financial instruments
is recorded as realized and unrealized credit derivative income
(loss). The Company adds back GSE CRT embedded derivative coupon
interest to its total interest income because the Company considers
GSE CRT embedded derivative coupon interest a current component of
its total interest income irrespective of whether the Company has
elected the fair value option for the GSE CRT or accounted for the
GSE CRT as a hybrid financial instrument.
The Company calculates effective interest expense (and by
calculation, effective cost of funds) as U.S. GAAP total interest
expense adjusted for contractual net interest income (expense) on
its interest rate swaps that is recorded as gain (loss) on
derivative instruments, net and the amortization of net deferred
gains (losses) on de-designated interest rate swaps that is
recorded as repurchase agreements interest expense. The Company
views its interest rate swaps as an economic hedge against
increases in future market interest rates on its floating rate
borrowings. The Company adds back the net payments it makes on its
interest rate swap agreements to its total U.S. GAAP interest
expense because the Company uses interest rate swaps to add
stability to interest expense. The Company excludes the
amortization of net deferred gains (losses) on de-designated
interest rate swaps from its calculation of effective interest
expense because the Company does not consider the amortization a
current component of its borrowing costs.
The Company calculates effective net interest income (and by
calculation, effective interest rate margin) as U.S. GAAP net
interest income adjusted for contractual net interest income
(expense) on its interest rate swaps that is recorded as gain
(loss) on derivative instruments, amortization of net deferred
gains (losses) on de-designated interest rate swaps that is
recorded as repurchase agreements interest expense and GSE CRT
embedded derivative coupon interest that is recorded as realized
and unrealized credit derivative income (loss), net.
The Company believes the presentation of effective interest
income, effective yield, effective interest expense, effective cost
of funds, effective net interest income and effective interest rate
margin measures, when considered together with U.S. GAAP financial
measures, provide information that is useful to investors in
understanding the Company's borrowing costs and operating
performance.
The following tables reconcile total interest income to
effective interest income and yield to effective yield for the
following periods:
|
Three Months
Ended
|
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
Total interest
income
|
202,221
|
|
|
3.89
|
%
|
|
187,074
|
|
|
3.91
|
%
|
|
151,599
|
|
|
3.42
|
%
|
Add: GSE CRT embedded
derivative
coupon interest recorded as
realized and unrealized
credit
derivative income (loss),
net
|
5,300
|
|
|
0.10
|
%
|
|
5,350
|
|
|
0.11
|
%
|
|
5,638
|
|
|
0.13
|
%
|
Effective interest
income
|
207,521
|
|
|
3.99
|
%
|
|
192,424
|
|
|
4.02
|
%
|
|
157,237
|
|
|
3.55
|
%
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
Total interest
income
|
389,295
|
|
|
3.90
|
%
|
|
304,824
|
|
|
3.40
|
%
|
Add: GSE CRT embedded
derivative coupon interest
recorded as realized and unrealized
credit derivative
income (loss), net
|
10,650
|
|
|
0.10
|
%
|
|
11,270
|
|
|
0.13
|
%
|
Effective interest
income
|
399,945
|
|
|
4.00
|
%
|
|
316,094
|
|
|
3.53
|
%
|
The following tables reconcile total interest expense to
effective interest expense and cost of funds to effective cost of
funds for the following periods:
|
Three Months
Ended
|
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds
/
Effective Cost
of Funds
|
|
Reconciliation
|
|
Cost of Funds
/
Effective Cost
of Funds
|
|
Reconciliation
|
|
Cost of Funds
/
Effective Cost
of Funds
|
Total interest
expense
|
129,236
|
|
|
2.73
|
%
|
|
113,019
|
|
|
2.65
|
%
|
|
77,860
|
|
|
2.04
|
%
|
Add (Less):
Amortization of net
deferred gain (loss) on
de-designated interest rate
swaps
|
5,916
|
|
|
0.13
|
%
|
|
5,851
|
|
|
0.14
|
%
|
|
6,898
|
|
|
0.18
|
%
|
Add (Less):
Contractual net interest
expense (income) on interest
rate
swaps recorded as gain (loss)
on
derivative instruments,
net
|
(7,525)
|
|
|
(0.16)
|
%
|
|
(4,509)
|
|
|
(0.11)
|
%
|
|
4,511
|
|
|
0.12
|
%
|
Effective interest
expense
|
127,627
|
|
|
2.70
|
%
|
|
114,361
|
|
|
2.68
|
%
|
|
89,269
|
|
|
2.34
|
%
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds
/
Effective Cost
of Funds
|
|
Reconciliation
|
|
Cost of Funds
/
Effective Cost
of Funds
|
Total interest
expense
|
242,255
|
|
|
2.69
|
%
|
|
145,993
|
|
|
1.89
|
%
|
Add (Less):
Amortization of net deferred gain (loss) on
de-designated interest rate
swaps
|
11,767
|
|
|
0.13
|
%
|
|
13,437
|
|
|
0.17
|
%
|
Add (Less):
Contractual net interest expense (income) on
interest rate swaps recorded as gain
(loss) on derivative
instruments, net
|
(12,034)
|
|
|
(0.13)
|
%
|
|
16,624
|
|
|
0.22
|
%
|
Effective interest
expense
|
241,988
|
|
|
2.69
|
%
|
|
176,054
|
|
|
2.28
|
%
|
The following table reconciles net interest income to effective
net interest income and net interest rate margin to effective
interest rate margin for the following periods:
|
Three Months
Ended
|
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
$ in
thousands
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
Net interest
income
|
72,985
|
|
|
1.16
|
%
|
|
74,055
|
|
|
1.26
|
%
|
|
73,739
|
|
|
1.38
|
%
|
Add (Less):
Amortization of net
deferred (gain) loss on
de-designated interest rate
swaps
|
(5,916)
|
|
|
(0.13)
|
%
|
|
(5,851)
|
|
|
(0.14)
|
%
|
|
(6,898)
|
|
|
(0.18)
|
%
|
Add: GSE CRT embedded
derivative
coupon interest recorded as
realized and unrealized
credit
derivative income (loss),
net
|
5,300
|
|
|
0.10
|
%
|
|
5,350
|
|
|
0.11
|
%
|
|
5,638
|
|
|
0.13
|
%
|
Add (Less):
Contractual net interest
income (expense) on interest
rate
swaps recorded as gain (loss)
on
derivative instruments,
net
|
7,525
|
|
|
0.16
|
%
|
|
4,509
|
|
|
0.11
|
%
|
|
(4,511)
|
|
|
(0.12)
|
%
|
Effective net
interest income
|
79,894
|
|
|
1.29
|
%
|
|
78,063
|
|
|
1.34
|
%
|
|
67,968
|
|
|
1.21
|
%
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
$ in
thousands
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
Net interest
income
|
147,040
|
|
|
1.21
|
%
|
|
158,831
|
|
|
1.51
|
%
|
Add (Less):
Amortization of net deferred (gain) loss on
de-designated interest rate
swaps
|
(11,767)
|
|
|
(0.13)
|
%
|
|
(13,437)
|
|
|
(0.17)
|
%
|
Add: GSE CRT embedded
derivative coupon interest recorded
as realized and unrealized credit
derivative income (loss), net
|
10,650
|
|
|
0.10
|
%
|
|
11,270
|
|
|
0.13
|
%
|
Add (Less):
Contractual net interest income (expense) on
interest rate swaps recorded as gain
(loss) on derivative
instruments, net
|
12,034
|
|
|
0.13
|
%
|
|
(16,623)
|
|
|
(0.22)
|
%
|
Effective net
interest income
|
157,957
|
|
|
1.31
|
%
|
|
140,041
|
|
|
1.25
|
%
|
Repurchase Agreement Debt-to-Equity Ratio
The following tables show the allocation of the Company's equity
to its target assets, the Company's debt-to-equity ratio, and the
Company's repurchase agreement debt-to-equity ratio as of
June 30, 2019 and March 31, 2019. The Company's
debt-to-equity ratio is calculated in accordance with U.S. GAAP and
is the ratio of total debt (sum of repurchase agreements and
secured loans) to total equity. The Company presents a repurchase
agreement debt-to-equity ratio, a non-GAAP financial measure of
leverage, because the mortgage REIT industry primarily uses
repurchase agreements, which typically mature within one year, to
finance investments. The Company believes presenting the Company's
repurchase agreement debt-to-equity ratio, when considered together
with U.S. GAAP financial measure of debt-to-equity ratio, provides
information that is useful to investors in understanding the
Company's refinancing risks, and gives investors a comparable
statistic to those other mortgage REITs who almost exclusively
borrow using short-term repurchase agreements that are subject to
refinancing risk.
June 30,
2019
|
|
$ in
thousands
|
Agency
RMBS
|
Agency
CMBS
|
Commercial
Credit (1)
|
Residential
Credit (2)
|
Total
|
Mortgage-backed and
credit risk transfer
securities
|
12,935,301
|
|
2,926,243
|
|
3,651,586
|
|
2,022,917
|
|
21,536,047
|
|
Cash and cash
equivalents (3)
|
44,940
|
|
9,724
|
|
31,996
|
|
12,960
|
|
99,620
|
|
Restricted cash
(4)
|
45,074
|
|
10,197
|
|
—
|
|
—
|
|
55,271
|
|
Derivative assets, at
fair value (4)
|
8,207
|
|
1,857
|
|
3
|
|
—
|
|
10,067
|
|
Other
assets
|
91,609
|
|
77,742
|
|
113,682
|
|
54,040
|
|
337,073
|
|
Total
assets
|
13,125,131
|
|
3,025,763
|
|
3,797,267
|
|
2,089,917
|
|
22,038,078
|
|
|
|
|
|
|
|
Repurchase
agreements
|
11,234,043
|
|
2,299,766
|
|
1,849,544
|
|
1,691,712
|
|
17,075,065
|
|
Secured loans
(5)
|
580,915
|
|
—
|
|
1,069,085
|
|
—
|
|
1,650,000
|
|
Derivative
liabilities, at fair value (4)
|
29,904
|
|
6,765
|
|
300
|
|
—
|
|
36,969
|
|
Other
liabilities
|
86,687
|
|
464,263
|
|
42,437
|
|
12,556
|
|
605,943
|
|
Total
liabilities
|
11,931,549
|
|
2,770,794
|
|
2,961,366
|
|
1,704,268
|
|
19,367,977
|
|
|
|
|
|
|
|
Total equity
(allocated)
|
1,193,582
|
|
254,969
|
|
835,901
|
|
385,649
|
|
2,670,101
|
|
Adjustments to
calculate repurchase agreement
debt-to-equity ratio:
|
|
|
|
|
|
Net equity in
unsecured assets (6)
|
—
|
|
—
|
|
(49,996)
|
|
—
|
|
(49,996)
|
|
Collateral pledged
against secured loans
|
(688,520)
|
|
—
|
|
(1,267,117)
|
|
—
|
|
(1,955,637)
|
|
Secured
loans
|
580,915
|
|
—
|
|
1,069,085
|
|
—
|
|
1,650,000
|
|
Equity related to
repurchase agreement debt
|
1,085,977
|
|
254,969
|
|
587,873
|
|
385,649
|
|
2,314,468
|
|
Debt-to-equity ratio
(7)
|
9.9
|
|
9.0
|
|
3.5
|
|
4.4
|
|
7.0
|
|
Repurchase agreement
debt-to-equity ratio (8)
|
10.3
|
|
9.0
|
|
3.1
|
|
4.4
|
|
7.4
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, commercial loans and investments in unconsolidated
joint ventures are included in commercial credit.
|
(2)
|
Investments in
non-Agency RMBS, GSE CRT and a loan participation interest are
included in residential credit.
|
(3)
|
Cash and cash
equivalents is allocated based on a percentage of equity for each
asset class.
|
(4)
|
Restricted cash,
derivative assets and derivative liabilities are allocated based on
the hedging strategy for each asset class.
|
(5)
|
Secured loans are
allocated based on amount of collateral pledged.
|
(6)
|
Net equity in
unsecured assets includes commercial loans, investments in
unconsolidated joint ventures and other.
|
(7)
|
Debt-to-equity ratio
is calculated as the ratio of total debt (sum of repurchase
agreements and secured loans) to total equity.
|
(8)
|
Repurchase agreement
debt-to-equity ratio is calculated as the ratio of repurchase
agreements to equity related to repurchase agreement
debt.
|
March 31,
2019
|
|
$ in
thousands
|
Agency
RMBS
|
Agency
CMBS
|
Commercial
Credit (1)
|
Residential
Credit (2)
|
Total
|
Mortgage-backed and
credit risk transfer securities
|
13,575,817
|
|
2,001,552
|
|
3,455,805
|
|
2,094,424
|
|
21,127,598
|
|
Cash and cash
equivalents (3)
|
35,406
|
|
4,302
|
|
25,869
|
|
12,905
|
|
78,482
|
|
Restricted
cash(4)
|
4,379
|
|
646
|
|
—
|
|
—
|
|
5,025
|
|
Derivative assets, at
fair value (4)
|
22,893
|
|
3,375
|
|
312
|
|
—
|
|
26,580
|
|
Other
assets
|
84,476
|
|
7,457
|
|
109,886
|
|
59,883
|
|
261,702
|
|
Total
assets
|
13,722,971
|
|
2,017,332
|
|
3,591,872
|
|
2,167,212
|
|
21,499,387
|
|
|
|
|
|
|
|
Repurchase
agreements
|
11,868,925
|
|
1,639,097
|
|
1,642,106
|
|
1,674,259
|
|
16,824,387
|
|
Secured loans
(5)
|
581,896
|
|
—
|
|
1,068,104
|
|
—
|
|
1,650,000
|
|
Derivative
liabilities, at fair value (4)
|
7,376
|
|
1,087
|
|
—
|
|
—
|
|
8,463
|
|
Other
liabilities
|
69,863
|
|
230,980
|
|
28,468
|
|
15,512
|
|
344,823
|
|
Total
liabilities
|
12,528,060
|
|
1,871,164
|
|
2,738,678
|
|
1,689,771
|
|
18,827,673
|
|
|
|
|
|
|
|
Total equity
(allocated)
|
1,194,911
|
|
146,168
|
|
853,194
|
|
477,441
|
|
2,671,714
|
|
Adjustments to
calculate repurchase agreement
debt-to-equity ratio:
|
|
|
|
|
|
Net equity in
unsecured assets (6)
|
—
|
|
—
|
|
(48,583)
|
|
—
|
|
(48,583)
|
|
Collateral pledged
against secured loans
|
(686,656)
|
|
—
|
|
(1,260,396)
|
|
—
|
|
(1,947,052)
|
|
Secured
loans
|
581,896
|
|
—
|
|
1,068,104
|
|
—
|
|
1,650,000
|
|
Equity related to
repurchase agreement debt
|
1,090,151
|
|
146,168
|
|
612,319
|
|
477,441
|
|
2,326,079
|
|
Debt-to-equity ratio
(7)
|
10.4
|
|
11.2
|
|
3.2
|
|
3.5
|
|
6.9
|
|
Repurchase agreement
debt-to-equity ratio (8)
|
10.9
|
|
11.2
|
|
2.7
|
|
3.5
|
|
7.2
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, commercial loans and investments in unconsolidated
joint ventures are included in commercial credit.
|
(2)
|
Investments in
non-Agency RMBS and GSE CRT are included in residential
credit.
|
(3)
|
Cash and cash
equivalents is allocated based on a percentage of equity for each
asset class.
|
(4)
|
Restricted cash,
derivative assets and derivative liabilities are allocated based on
the hedging strategy for each asset class.
|
(5)
|
Secured loans are
allocated based on amount of collateral pledged.
|
(6)
|
Net equity in
unsecured assets includes commercial loans, investments in
unconsolidated joint ventures and other.
|
(7)
|
Debt-to-equity ratio
is calculated as the ratio of total debt (sum of repurchase
agreements and secured loans) to total equity.
|
(8)
|
Repurchase agreement
debt-to-equity ratio is calculated as the ratio of repurchase
agreements to equity related to repurchase agreement
debt.
|
Average Earning Asset Balances
The table below presents information related to the Company's
average earning assets for the following periods.
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Average Earning
Asset Balances (1):
|
|
|
|
|
|
|
|
|
|
Agency
RMBS:
|
|
|
|
|
|
|
|
|
|
15 year fixed-rate,
at amortized cost
|
342,822
|
|
|
371,228
|
|
|
2,648,396
|
|
|
356,946
|
|
|
2,763,406
|
|
30 year fixed-rate,
at amortized cost
|
12,569,625
|
|
|
11,780,005
|
|
|
7,805,977
|
|
|
12,176,996
|
|
|
7,818,321
|
|
ARM, at amortized
cost
|
6,326
|
|
|
19,355
|
|
|
220,960
|
|
|
12,805
|
|
|
226,103
|
|
Hybrid ARM, at
amortized cost
|
146,331
|
|
|
224,458
|
|
|
1,595,131
|
|
|
185,179
|
|
|
1,630,813
|
|
Agency - CMO, at
amortized cost
|
377,794
|
|
|
291,914
|
|
|
254,642
|
|
|
335,091
|
|
|
264,210
|
|
Agency CMBS, at
amortized cost
|
1,940,906
|
|
|
1,129,227
|
|
|
50,179
|
|
|
1,537,309
|
|
|
25,228
|
|
Non-Agency CMBS, at
amortized cost
|
3,470,708
|
|
|
3,361,132
|
|
|
3,177,398
|
|
|
3,416,222
|
|
|
3,185,442
|
|
Non-Agency RMBS, at
amortized cost
|
1,020,856
|
|
|
1,084,721
|
|
|
1,030,949
|
|
|
1,052,612
|
|
|
1,057,619
|
|
GSE CRT, at amortized
cost
|
852,083
|
|
|
808,296
|
|
|
769,821
|
|
|
830,310
|
|
|
773,263
|
|
Loan participation
interest
|
51,377
|
|
|
54,763
|
|
|
—
|
|
|
53,061
|
|
|
—
|
|
Commercial loans, at
amortized cost
|
24,365
|
|
|
27,375
|
|
|
178,080
|
|
|
25,862
|
|
|
185,767
|
|
Average earning
assets
|
20,803,193
|
|
|
19,152,474
|
|
|
17,731,533
|
|
|
19,982,393
|
|
|
17,930,172
|
|
Average Earning
Asset Yields (2):
|
|
|
|
|
|
|
|
|
|
Agency
RMBS:
|
|
|
|
|
|
|
|
|
|
15 year
fixed-rate
|
3.21
|
%
|
|
3.50
|
%
|
|
1.99
|
%
|
|
3.36
|
%
|
|
2.02
|
%
|
30 year
fixed-rate
|
3.43
|
%
|
|
3.38
|
%
|
|
2.95
|
%
|
|
3.40
|
%
|
|
2.96
|
%
|
ARM
|
3.60
|
%
|
|
3.70
|
%
|
|
2.43
|
%
|
|
3.67
|
%
|
|
2.37
|
%
|
Hybrid ARM
|
2.85
|
%
|
|
3.47
|
%
|
|
2.28
|
%
|
|
3.23
|
%
|
|
2.26
|
%
|
Agency -
CMO
|
3.24
|
%
|
|
3.56
|
%
|
|
3.04
|
%
|
|
3.38
|
%
|
|
2.76
|
%
|
Agency
CMBS
|
3.49
|
%
|
|
3.52
|
%
|
|
3.63
|
%
|
|
3.50
|
%
|
|
3.63
|
%
|
Non-Agency
CMBS
|
5.07
|
%
|
|
4.98
|
%
|
|
4.95
|
%
|
|
5.02
|
%
|
|
4.90
|
%
|
Non-Agency
RMBS
|
6.53
|
%
|
|
6.71
|
%
|
|
7.12
|
%
|
|
6.62
|
%
|
|
7.10
|
%
|
GSE CRT
(3)
|
3.56
|
%
|
|
3.67
|
%
|
|
3.37
|
%
|
|
3.61
|
%
|
|
3.18
|
%
|
Commercial
loans
|
11.13
|
%
|
|
11.08
|
%
|
|
9.12
|
%
|
|
11.10
|
%
|
|
8.98
|
%
|
Loan participation
interest
|
6.12
|
%
|
|
6.14
|
%
|
|
—
|
%
|
|
6.13
|
%
|
|
—
|
%
|
Average earning asset
yields
|
3.89
|
%
|
|
3.91
|
%
|
|
3.42
|
%
|
|
3.90
|
%
|
|
3.40
|
%
|
|
|
(1)
|
Average balances for
each period are based on weighted month-end average earning
assets.
|
(2)
|
Average earning asset
yields for the period are calculated by dividing interest income,
including amortization of premiums and discounts, by average
month-end earning assets based on the amortized cost of the
investments. All yields are annualized.
|
(3)
|
GSE CRT average
earning asset yields exclude coupon interest associated with
embedded derivatives on securities not accounted for under the fair
value option that is recorded as realized and unrealized credit
derivative income (loss), net under U.S. GAAP.
|
Average Borrowings and Cost of Funds
The table below presents information related to the Company's
average borrowings and average cost of funds.
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2019
|
|
March 31,
2019
|
|
June 30,
2018
|
|
June 30,
2019
|
|
June 30,
2018
|
Average Borrowings
(1):
|
|
|
|
|
|
|
|
|
|
Agency RMBS
(2)
|
12,516,268
|
|
|
11,664,156
|
|
|
11,146,252
|
|
|
12,092,572
|
|
|
11,286,117
|
|
Agency
CMBS
|
1,881,685
|
|
|
1,074,917
|
|
|
43,984
|
|
|
1,480,530
|
|
|
22,114
|
|
Non-Agency CMBS
(2)
|
2,819,109
|
|
|
2,663,941
|
|
|
2,556,166
|
|
|
2,741,948
|
|
|
2,549,519
|
|
Non-Agency
RMBS
|
901,451
|
|
|
886,554
|
|
|
861,598
|
|
|
894,044
|
|
|
876,318
|
|
GSE CRT
|
751,882
|
|
|
717,482
|
|
|
667,972
|
|
|
734,777
|
|
|
671,245
|
|
Exchangeable senior
notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,767
|
|
Loan
participation interest
|
38,532
|
|
|
41,072
|
|
|
—
|
|
|
39,795
|
|
|
—
|
|
Total average
borrowings
|
18,908,927
|
|
|
17,048,122
|
|
|
15,275,972
|
|
|
17,983,666
|
|
|
15,463,080
|
|
Maximum borrowings
during the period (3)
|
19,365,413
|
|
|
18,474,387
|
|
|
15,352,321
|
|
|
19,365,413
|
|
|
15,674,202
|
|
Average Cost of
Funds (4):
|
|
|
|
|
|
|
|
|
|
Agency RMBS
(2)
|
2.73
|
%
|
|
2.59
|
%
|
|
1.98
|
%
|
|
2.66
|
%
|
|
1.82
|
%
|
Agency
CMBS
|
2.68
|
%
|
|
2.64
|
%
|
|
2.38
|
%
|
|
2.66
|
%
|
|
2.38
|
%
|
Non-Agency CMBS
(2)
|
3.19
|
%
|
|
3.24
|
%
|
|
2.68
|
%
|
|
3.22
|
%
|
|
2.48
|
%
|
Non-Agency
RMBS
|
3.46
|
%
|
|
3.54
|
%
|
|
3.19
|
%
|
|
3.50
|
%
|
|
3.05
|
%
|
GSE CRT
|
3.47
|
%
|
|
3.49
|
%
|
|
3.16
|
%
|
|
3.48
|
%
|
|
3.02
|
%
|
Exchangeable senior
notes
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
5.58
|
%
|
Loan
participation interest
|
4.11
|
%
|
|
4.15
|
%
|
|
—
|
%
|
|
4.13
|
%
|
|
—
|
%
|
Cost of
funds
|
2.73
|
%
|
|
2.65
|
%
|
|
2.04
|
%
|
|
2.69
|
%
|
|
1.89
|
%
|
Interest rate swaps
average fixed pay rate (5)
|
2.28
|
%
|
|
2.43
|
%
|
|
2.18
|
%
|
|
2.35
|
%
|
|
2.26
|
%
|
Interest rate swaps
average floating receive rate (6)
|
(2.51)
|
%
|
|
(2.58)
|
%
|
|
(2.00)
|
%
|
|
(2.54)
|
%
|
|
(1.89)
|
%
|
Effective cost of
funds (non-GAAP measure) (7)
|
2.70
|
%
|
|
2.68
|
%
|
|
2.34
|
%
|
|
2.69
|
%
|
|
2.28
|
%
|
|
|
|
|
|
|
|
|
|
|
Debt-to-equity ratio
(as of period end)
|
7.0
|
x
|
|
6.9
|
x
|
|
6.1
|
x
|
|
7.0
|
x
|
|
6.1
|
x
|
|
|
(1)
|
Average borrowings
for each period are based on weighted month-end balances; all
percentages are annualized.
|
(2)
|
Agency RMBS and
non-Agency CMBS average borrowings and cost of funds include
borrowings under repurchase agreements and secured
loans.
|
(3)
|
Amount represents the
maximum borrowings at month-end during each of the respective
periods.
|
(4)
|
Average cost of funds
is calculated by dividing annualized interest expense excluding
amortization of net deferred gain (loss) on de-designated interest
rate swaps by the Company's average borrowings.
|
(5)
|
Interest rate swaps
average fixed pay rate is calculated by dividing annualized
contractual swap interest expense by the Company's average notional
balance of interest rate swaps.
|
(6)
|
Interest rate swaps
average floating receive rate is calculated by dividing annualized
contractual swap interest income by the Company's average notional
balance of interest rate swaps.
|
(7)
|
For a reconciliation
of cost of funds to effective cost of funds, see "Non-GAAP
Financial Measures."
|
View original content to download
multimedia:http://www.prnewswire.com/news-releases/invesco-mortgage-capital-inc-reports-second-quarter-2019-financial-results-300898156.html
SOURCE Invesco Mortgage Capital Inc.