Invesco Mortgage Capital Inc. Reports Second Quarter 2014 Financial Results

Book Value Gains and Stable Core Earnings Drive $1.77 of Comprehensive Income per share

ATLANTA, July 29, 2014 /PRNewswire/ --

Second Quarter Highlights

  • Book value per share increased 6.9% to $19.80
  • Core earnings of $62.1 million or $0.50 per share
  • GAAP net loss of $95.1 million or $0.76 per share, primarily due to change in value of interest rate swaps recorded in income
  • Comprehensive income attributable to common shareholders of $217.9 million or $1.77 per share

Invesco Mortgage Capital Inc. IVR (the "Company") today announced financial results for the quarter ended June 30, 2014, including core earnings of $0.50 per share and a 6.9% increase in book value.

Invesco Mortgage Capital.

"We are pleased to announce another quarter of stable core earnings and growth in book value per share," said Richard King, President and CEO. "We believe accumulation of an attractive dividend and long-term stability of book value will reward long-term investors. Year-to-date, IVR has declared $1 per share of dividends and has $1.83 of growth in book value per share."

Management of the Company's portfolio reflects initiatives designed to take advantage of opportunities and mitigate risks resulting from structural changes in the financing of real estate in the United States. More narrative description of initiatives and rationale are included in the financial results below.

 

($ in millions, except per share amounts)

Q2 '14

Q1 '14


(unaudited)

(unaudited)

Average earning assets (at amortized costs)

$20,025.9

$19,416.3

Average borrowed funds

17,546.7

17,103.0

Average equity

$2,470.9

$2,335.3






Interest income

$174.5

$171.1

Interest expense

69.4

68.6

Net interest income

105.0

102.4

Loss on sale of investments

(20.8)

(11.7)

Loss on interest rate derivative instruments, net

(167.8)

(151.3)

Other income

4.2

0.8

Operating expenses

13.1

12.5

Net loss

(92.4)

(72.5)

Preferred dividend

2.7

2.7

Net loss after preferred dividend

($95.1)

($75.3)






Average portfolio yield

3.48%

3.52%

Cost of funds

1.58%

1.60%

Debt to equity ratio

6.82x

7.00x

Return on average equity

(15.40%)

(12.89%)

Book value per common share (diluted)

$19.80

$18.53

Loss per common share (basic)

($0.76)

($0.60)

Dividend per common share

$0.50

$0.50

Dividend per preferred share

$0.4844

$0.4844






Non-GAAP Financial Measures*:





Core earnings

$62.1

$56.9

Core earnings per common share

$0.50

$0.46

Effective interest expense

$100.1

$98.8

Effective cost of funds

2.28%

2.31%

Effective net interest income

$74.3

$72.3

Effective interest rate margin

1.20%

1.21%

 

* Core earnings, effective interest expense (and by calculation, effective cost of funds) and effective net interest income (and by calculation, effective interest rate margin) are non-Generally Accepted Accounting Principles ("GAAP") financial measures. Refer to the section entitled "Non-GAAP Financial Measures" below for important disclosures and a reconciliation to the most comparable U.S. GAAP measures of net income, total interest expense (and by calculation, cost of funds) and net interest income (and by calculation, net interest rate margin).

Financial Summary

During the second quarter, the Company generated $62.1 million in core earnings, and the book value improved 6.9% to $19.80. This was accomplished while continuing to reposition the investment portfolio to be less interest rate sensitive. The Company made progress on its key initiatives by adding a residential loan securitization and increasing the investment in credit risk transfer securities issued by government-sponsored enterprises ("GSE CRT"). Net loss after preferred dividend for the second quarter of 2014 was $95.1 million, compared to $75.3 million for the first quarter of 2014. The increase in net loss after preferred dividend was primarily due to the change in value of the interest rate swaps recorded in income.

As of June 30, 2014, the Company's mortgage-backed securities ("MBS") portfolio was $18.2 billion, an increase of $712.6 million from March 31, 2014. In addition, the Company increased its portfolio of loans held for investment to $2.4 billion, an increase of $243.0 million from March 31, 2014. For the quarter ended June 30, 2014, average earning assets were $20.0 billion, representing an increase of $609.6 million from March 31, 2014. The portfolio generated interest income of $174.5 million during the three months ended June 30, 2014, which reflects an increase of $3.4 million from the three months ended March 31, 2014. The increase in interest income was the result of higher average assets during the quarter and the change in portfolio composition.

For the quarter ended June 30, 2014, the Company had average borrowings of approximately $17.5 billion and effective interest expense of $100.1 million, compared to $17.1 billion and $98.8 million, respectively, for the first quarter of 2014. The Company's effective cost of funds was 2.28% and 2.31% for the second quarter of 2014 and first quarter of 2014, respectively.  The decrease in effective cost of funds was due to the full quarter impact of lower rate, forward starting swaps that began accruing during the fourth quarter of 2013.

Operating expenses for the second quarter of 2014 totaled $13.1 million, compared to $12.5 million for the first quarter of 2014. The ratio of operating expenses to average equity for the second quarter was 2.12%, which was a decrease of 3 basis points from the first quarter of 2014. The decrease in operating expenses was primarily due to lower management fees after repurchasing shares of common stock in the first quarter of 2014.

The Company declared a common stock dividend of $0.50 per share for the second quarter of 2014. The dividend was paid on July 28, 2014.

The Company declared a preferred stock dividend of $0.4844 per share for the second quarter of 2014.  The dividend was paid on July 25, 2014.

About Invesco Mortgage Capital Inc.

Invesco Mortgage Capital Inc. is a real estate investment trust that focuses on 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 subsidiary of Invesco Ltd. IVZ, 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 Wednesday, July 30, 2014, at 9:00 a.m. ET, by calling one of the following numbers:

North America Toll Free: 

888-942-8507

International: 

415-228-4839

Passcode:

Invesco

An audio replay will be available until 5:00 pm ET on August 15, 2014 by calling:

866-448-5638 (North America) or 203-369-1183 (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 statements with respect to the Company's beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance. In addition, words such as "will," "anticipates," "expects" and "plans," 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 the Company's expectations. The Company cautions investors not to rely unduly on any forward-looking statements and urges investors 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 the Company's 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 the Company makes, or that are attributable to the Company, are expressly qualified by this cautionary notice.  The Company expressly disclaims 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

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)






Three Months Ended
 June 30,


Six Months Ended
 June 30,

$ in thousands, except per share data

2014



2013



2014



2013


Interest Income












Mortgage-backed securities

151,920



168,736



303,659



329,080


Residential loans

20,471



6,889



38,175



7,026


Commercial loans

2,061



60



3,680



60


Total interest income

174,452



175,685



345,514



336,166


Interest Expense












Repurchase agreements

47,822



68,463



96,893



134,792


Secured loans

176





176




Exchangeable senior notes

5,613



5,622



11,220



6,782


Asset-backed securities

15,826



5,377



29,761



5,456


Total interest expense

69,437



79,462



138,050



147,030


Net interest income

105,015



96,223



207,464



189,136


Provision for loan losses

(50)



663



157



663


Net interest income after provision for loan losses

105,065



95,560



207,307



188,473


Other Income (loss)












Gain (loss) on sale of investments, net

(20,766)



5,692



(32,484)



12,404


Equity in earnings and fair value change in unconsolidated ventures

3,894



2,157



4,335



3,747


Gain (loss) on interest rate derivative instruments, net

(167,816)



53,314



(319,128)



51,311


Realized and unrealized credit default swap income

292



180



621



531


Total other income (loss)

(184,396)



61,343



(346,656)



67,993


Expenses












Management fee – related party

9,327



10,807



18,662



21,161


General and administrative

3,739



3,043



6,935



4,587


Total expenses

13,066



13,850



25,597



25,748


Net income (loss)

(92,397)



143,053



(164,946)



230,718


Net income (loss) attributable to non-controlling interest

(1,057)



1,493



(1,879)



2,455


Net income (loss) attributable to Invesco Mortgage Capital Inc.

(91,340)



141,560



(163,067)



228,263


Dividends to preferred shareholders

2,712



2,713



5,425



5,425


Net income (loss) attributable to common shareholders

(94,052)



138,847



(168,492)



222,838


Earnings (loss) per share:












Net income (loss) attributable to common shareholders












Basic

(0.76)



1.03



(1.37)



1.69


Diluted

(0.76)



0.95



(1.37)



1.61


Dividends declared per common share

0.50



0.65



1.00



1.30


 


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)




As of

$ in thousands, except per share amounts

June 30,
 2014


December 31,
 2013


(Unaudited)




ASSETS


Mortgage-backed securities, at fair value

18,247,789



17,348,657


Residential loans, held-for-investment, net of loan loss reserve

2,310,686



1,810,262


Commercial loans, held-for-investment, net of loan loss reserve

95,585



64,599


Cash and cash equivalents

126,128



210,612


Due from counterparties

30,413



1,500


Investment related receivable

399,499



515,404


Investments in unconsolidated ventures, at fair value

44,030



44,403


Accrued interest receivable

69,261



68,246


Derivative assets, at fair value

70,190



262,059


Deferred securitization and financing costs

13,280



13,894


Other investments

18,500



10,000


Other assets

879



1,343


Total assets (1)

21,426,240



20,350,979


LIABILITIES AND EQUITY






Liabilities:






Repurchase agreements

14,723,223



15,451,675


Secured loans

625,000




Asset-backed securities

2,016,923



1,643,741


Exchangeable senior notes

400,000



400,000


Derivative liability, at fair value

268,600



263,204


Dividends and distributions payable

64,972



66,087


Investment related payable

670,149



28,842


Accrued interest payable

25,393



26,492


Collateral held payable

14,199



52,698


Accounts payable and accrued expenses

2,266



4,304


Due to affiliate

9,904



10,701


Total liabilities (1)

18,820,629



17,947,744


Equity:






Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized, 7.75% series A cumulative redeemable, 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference) at June 30, 2014 and December 31, 2013, respectively

135,356



135,356


Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 123,094,376 and 124,510,246 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively

1,231



1,245


Additional paid in capital

2,531,739



2,552,464


Accumulated other comprehensive income (loss)

355,093



(156,993)


Retained earnings (distributions in excess of earnings)

(447,542)



(155,957)


Total shareholders' equity

2,575,877



2,376,115


Non-controlling interest

29,734



27,120


Total equity

2,605,611



2,403,235


Total liabilities and equity

21,426,240



20,350,979








(1) The Company's consolidated balance sheets include assets of consolidated variable interest entities ("VIEs") that can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to the primary beneficiary (IAS Asset I LLC, an indirect subsidiary of the Company). As of June 30, 2014 and December 31, 2013, total assets of the consolidated VIEs were $2,322,093 and $1,819,295, respectively, and total liabilities of the consolidated VIEs were $2,022,948 and $1,648,400, respectively.

 

Non-GAAP Financial Measures

In addition to the results presented in accordance with U.S. GAAP, this release contains the non-GAAP financial measures of "core earnings," "effective interest expense" (and by calculation, "effective cost of funds") and "effective net interest income (and by calculation, "effective interest rate margin"). The Company's management uses these non-GAAP financial measures in its internal analysis of results and believes these measures are useful to investors for the reasons explained below. The most directly comparable U.S. GAAP measures are net income attributable to common shareholders, total interest expense (and by calculation, cost of funds) and net interest income (and by calculation, net interest rate margin).

These non-GAAP financial measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies. An analysis of any non-GAAP financial measure should be made in conjunction with results presented in accordance with U.S. GAAP. Additional reconciling items may be added to the non-GAAP measures if deemed appropriate.

The Company calculates core earnings as U.S. GAAP net income attributable to common shareholders adjusted for gain (loss) on sale of investments, net, realized gain on interest rate derivative instruments (excluding contractual net interest on interest rate swaps), unrealized loss on interest rate derivative instruments, amortization of deferred swap losses from de-designation and adjustments attributable to non-controlling interest.

The Company believes the presentation of core earnings allows investors to evaluate and compare the performance of the Company to that of its peers because core earnings measures investment portfolio performance over multiple reporting periods by removing realized and unrealized gains and losses. The Company records changes in the valuation of its investment portfolio, and through December 31, 2013 certain interest rate swaps, in other comprehensive income. Effective December 31, 2013, the Company elected to discontinue hedge accounting for its interest rate swaps. As a result of its election, starting January 1, 2014, the change in market value of its interest rate swaps and the amortization of deferred swap losses remaining in other comprehensive income at December 31, 2013 are included in U.S. GAAP net income. In addition, the Company uses swaptions, invests in to-be-announced securities and U.S. Treasury futures that do not qualify under U.S. GAAP for inclusion in other comprehensive income, and, as such, the changes in valuation are recorded in the period in which they occur. For internal portfolio analysis, the Company's management deducts these gains and losses from U.S. GAAP net income to provide a consistent view of investment portfolio performance across reporting periods. As such, the Company believes that the disclosure of core earnings is useful and meaningful to its investors.

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 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.

Effective interest expense, effective cost of funds, effective net interest income and effective interest rate margin include adjustments for the net interest component related to the Company's interest rate swaps and excludes amortization of deferred swap losses from de-designation. Although, as of January 1, 2014 the Company has elected to discontinue hedge accounting for its interest rate swaps, such derivative instruments are viewed by the Company as an economic hedge against increases in future market interest rates on its liabilities and therefore the effective cost of funds reflects interest expense adjusted to include the realized loss (i.e., the interest expense component) for all of its interest rate swaps and add back the unrealized loss from swap losses that were previously recorded in other comprehensive income and is being amortized into interest expense over the remaining swap lives. In addition, the Company views the cost of the associated repurchase agreements (interest expense), borrowing costs on its exchangeable senior notes, and borrowing costs on its asset-backed securities as a component of its effective cost of funds.

The Company believes the presentation of effective interest expense, effective costs 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, as viewed by the Company.

The table below provides a reconciliation of U.S. GAAP net income attributable to common shareholders to core earnings for the following periods:

 


Three Months Ended


Six Months Ended

$ in thousands, except per share data

June 30,

2014



March 31,

2014



June 30,

2013



June 30,

2014



June 30,

2013


Net income (loss) attributable to common shareholders

(94,052)



(74,440)



138,847



(168,492)



222,838


Adjustments















(Gain) loss on sale of investments, net

20,766



11,718



(5,692)



32,484



(12,404)


Realized loss on interest rate derivative instruments (excluding contractual net interest on interest rate swaps of $52,205, $51,441, $0, $103,646 and $0, respectively)

15,037



18,824



(27,159)



33,861



(27,159)


Unrealized (gain) loss on interest rate derivative instruments

100,574



81,047



(26,155)



181,621



(24,152)


Amortization of deferred swap losses from de-designation

21,532



21,296





42,828




Subtotal

157,909



132,885



(59,006)



290,794



(63,715)


Adjustment attributable to non-controlling interest

(1,807)



(1,511)



613



(3,318)



663


Core earnings

62,050



56,934



80,454



118,984



159,786


Basic earnings (loss) per common share

(0.76)



(0.60)



1.03



(1.37)



1.69


Core earnings per share attributable to common shareholders

0.50



0.46



0.60



0.97



1.22


 

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, 2014


Three Months Ended
 March 31, 2014


Three Months Ended
 June 30, 2013

$ 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

69,437


1.58%


68,613


1.60%


79,462


1.66%

Less: Amortization of deferred swap losses from de-designation

(21,532)


(0.49)%


(21,296)


(0.49)%



—%

Add: Net interest paid - interest rate swaps

52,205


1.19%


51,441


1.20%



—%

Effective interest expense

100,110


2.28%


98,758


2.31%


79,462


1.66%

 


Six Months Ended
 June 30, 2014


Six Months Ended
 June 30, 2013

$ in thousands

Reconciliation


Cost of Funds /
Effective Cost
of Funds


Reconciliation


Cost of Funds /
Effective Cost
of Funds

Total interest expense

138,050


1.59%


147,030


1.62%

Less: Amortization of deferred swap losses from de-designation

(42,828)


(0.49)%



—%

Add: Net interest paid - interest rate swaps

103,646


1.20%



—%

Effective interest expense

198,868


2.30%


147,030


1.62%

 

The following tables reconcile 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, 2014


Three Months Ended
 March 31, 2014


Three Months Ended
 June 30, 2013

$ 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

105,015


1.90%


102,449


1.92%


96,223


1.59%

Add: Amortization of deferred swap losses from de-designation

21,532


0.49%


21,296


0.49%



—%

Less: Net interest paid - interest rate swaps

(52,205)


(1.19)%


(51,441)


(1.20)%



—%

Effective net interest income

74,342


1.20%


72,304


1.21%


96,223


1.59%

 


Six Months Ended
 June 30, 2014


Six Months Ended
 June 30, 2013

$ in thousands

Reconciliation


Net Interest
Rate Margin /
Effective
Interest Rate
Margin


Reconciliation


Net Interest
Rate Margin /

Effective
Interest Rate
Margin

Net interest income

207,464


1.91%


189,136


1.61%

Add: Amortization of deferred swap losses from de-designation

42,828


0.49%



—%

Less: Net interest paid - interest rate swaps

(103,646)


(1.20)%



—%

Effective net interest income

146,646


1.20%


189,136


1.61%

 

Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company's MBS portfolio as of June 30, 2014:

 

$ in thousands

Principal

Balance


Unamortized

Premium

(Discount)


Amortized

Cost


Unrealized

Gain/

(Loss), net


Fair

Value


Net

Weighted

Average

Coupon (1)


Period-

end

Weighted

Average

Yield (2)


Quarterly

Weighted

Average

Yield (3)

Agency RMBS*:
















15 year fixed-rate

1,395,263


69,737


1,465,000


30,999


1,495,999


4.04%


2.60%


2.57%

30 year fixed-rate

5,848,240


394,803


6,243,043


(3,048)


6,239,995


4.17%


3.01%


3.03%

ARM

545,715


9,431


555,146


6,138


561,284


2.86%


2.55%


2.29%

Hybrid ARM

2,555,585


37,078


2,592,663


20,674


2,613,337


2.79%


2.52%


2.23%

Total Agency pass-through

10,344,803


511,049


10,855,852


54,763


10,910,615


3.74%


2.81%


2.75%

Agency-CMO(4)

1,789,639


(1,270,882)


518,757


(8,322)


510,435


2.57%


4.46%


3.42%

Non-Agency RMBS(5)(6)(7)

3,816,728


(632,014)


3,184,714


97,811


3,282,525


3.63%


4.14%


4.70%

GSE CRT(8)

431,000


28,798


459,798


46,837


506,635


5.17%


4.07%


4.04%

CMBS(9)

4,928,396


(2,023,533)


2,904,863


132,716


3,037,579


3.52%


4.56%


4.54%

Total

21,310,566


(3,386,582)


17,923,984


323,805


18,247,789


3.60%


3.41%


3.36%

____________________

*      Residential mortgage-backed securities ("RMBS")


(1)     Net weighted average coupon ("WAC") as of June 30, 2014 is presented net of servicing and other fees.

(2)     Period-end weighted average yield is based on amortized cost as of June 30, 2014 and incorporates future prepayment and loss assumptions.

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

(4)     Included in Agency-CMO are interest-only securities, which represent 23.6% of the balance based on fair value.

(5)     Included in Non-Agency RMBS are securities of $26.0 million for a future securitization not yet settled.

(6)     Non-Agency RMBS held by the Company is 63.4% variable rate, 30.9% fixed rate, and 5.7% floating rate based on fair value (excluding securities for a future securitization not yet settled).

(7)     Of the total discount in Non-Agency RMBS, $390.5 million is non-accretable.

(8)     GSE CRT are general obligations of Fannie Mae or Freddie Mac that are structured to provide credit protection to the GSE issuer with respect to defaults and other credit events within reference pools of residential mortgage loans that collateralize MBS issued and guaranteed by such GSE.

(9)     Included in the CMBS are interest-only securities and commercial real estate mezzanine loan pass-through certificates which represent 6.2% and 1.5% of the balance based on fair value, respectively.

 

Constant Prepayment Rates ("CPR")

The CPR of the Company's portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income. The Company's Agency, non-Agency RMBS and GSE CRT had a weighted average CPR of 10.0 and 8.2 for the for the three months ended June 30, 2014 and March 31, 2014, respectively. The table below shows the three month CPR for the Company's RMBS compared to bonds with similar characteristics ("Cohorts"):

 


June 30, 2014


March 31, 2014


Company


Cohorts


Company


Cohorts

15 year Agency RMBS

12.3



13.3



9.8



12.4


30 year Agency RMBS

9.4



9.8



7.2



8.2


Agency Hybrid ARM RMBS

9.4



NA


5.9



NA

Non-Agency RMBS

11.2



NA


10.5



NA

GSE CRT

4.5



NA


4.3



NA

Weighted average

10.0



NA


8.2



NA

 

Borrowings

The Company has entered into repurchase agreements, secured loans and issued exchangeable senior notes to finance the majority of its portfolio of investments. The following table summarizes certain characteristics of the Company's borrowings at June 30, 2014 and December 31, 2013:

 

$ in thousands

June 30, 2014


December 31, 2013


Amount

Outstanding


Weighted

Average

Interest

Rate


Weighted

Average

Remaining

Maturity

(Days)


Amount

Outstanding


Weighted

Average

Interest

Rate


Weighted

Average

Remaining

Maturity

(Days)

Repurchase Agreements:












Agency RMBS

10,031,609


0.32%


20


10,281,154


0.38%


19

Non-Agency RMBS

2,711,799


1.54%


30


3,066,356


1.55%


33

GSE CRT

347,447


1.56%


41


21,708


1.50%


42

CMBS

1,632,368


1.37%


22


2,082,457


1.39%


23

Secured Loans

625,000


0.25%


101



—%


0

Exchangeable Senior Notes

400,000


5.00%


1,354


400,000


5.00%


1,535

Total

15,748,223


0.78%


59


15,851,675


0.86%


60

 

Interest Rate Swaps

As of June 30, 2014, the Company had the following interest rate swaps outstanding:

$ in thousands

Counterparty





Notional


Maturity Date


Fixed Interest

Rate

in Contract

SunTrust Bank





100,000


7/15/2014


2.79%

Deutsche Bank AG





200,000


1/15/2015


1.08%

Deutsche Bank AG





250,000


2/15/2015


1.14%

Credit Suisse International





100,000


2/24/2015


3.26%

Credit Suisse International





100,000


3/24/2015


2.76%

Wells Fargo Bank, N.A.





100,000


7/15/2015


2.85%

Wells Fargo Bank, N.A.





50,000


7/15/2015


2.44%

Morgan Stanley Capital Services, LLC





300,000


1/24/2016


2.12%

The Bank of New York Mellon





300,000


1/24/2016


2.13%

Morgan Stanley Capital Services, LLC





300,000


4/5/2016


2.48%

Citibank, N.A.





300,000


4/15/2016


1.67%

Credit Suisse International





500,000


4/15/2016


2.27%

The Bank of New York Mellon





500,000


4/15/2016


2.24%

JPMorgan Chase Bank, N.A.





500,000


5/16/2016


2.31%

Goldman Sachs Bank USA





500,000


5/24/2016


2.34%

Goldman Sachs Bank USA





250,000


6/15/2016


2.67%

Wells Fargo Bank, N.A.





250,000


6/15/2016


2.67%

JPMorgan Chase Bank, N.A.





500,000


6/24/2016


2.51%

Citibank, N.A.





500,000


10/15/2016


1.93%

Deutsche Bank AG





150,000


2/5/2018


2.90%

ING Capital Markets LLC





350,000


2/24/2018


0.95%

Morgan Stanley Capital Services, LLC





100,000


4/5/2018


3.10%

ING Capital Markets LLC





300,000


5/5/2018


0.79%

JPMorgan Chase Bank, N.A.





200,000


5/15/2018


2.93%

UBS AG





500,000


5/24/2018


1.10%

ING Capital Markets LLC





400,000


6/5/2018


0.87%

The Royal Bank of Scotland Plc





500,000


9/5/2018


1.04%

CME Clearing House


(3)

(4)


300,000


2/5/2021


2.50%

CME Clearing House


(3)

(4)


300,000


2/5/2021


2.69%

Wells Fargo Bank, N.A.





200,000


3/15/2021


3.14%

Citibank, N.A.





200,000


5/25/2021


2.83%

HSBC Bank USA, National Association


(1)



550,000


2/24/2022


2.45%

The Royal Bank of Scotland Plc


(2)



400,000


3/15/2023


2.39%

UBS AG


(2)



400,000


3/15/2023


2.51%

HSBC Bank USA, National Association





250,000


6/5/2023


1.91%

HSBC Bank USA, National Association





250,000


7/5/2023


1.97%

The Royal Bank of Scotland Plc





500,000


8/15/2023


1.98%

CME Clearing House


(4)



600,000


8/24/2023


2.88%

UBS AG





250,000


11/15/2023


2.23%

HSBC Bank USA, National Association





500,000


12/15/2023


2.20%

Total





12,800,000




2.12%

 

(1)     Forward start date of February 2015

(2)     Forward start date of March 2015

(3)     Forward start date of February 2016

(4)     Beginning June 10, 2013, regulations promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act mandate that the Company clear new interest rate swap transactions through a central counterparty. Transactions that are centrally cleared result in the Company facing a clearing house, rather than a swap dealer, as counterparty. Central clearing requires the Company to post collateral in the form of initial and variation margin to the clearing house which reduces default risk.

 

Average Balances

The table below presents certain information for the Company's portfolio for the three and six month periods ending June 30, 2014 and 2013.

 


Three Months Ended
 June 30,


Six Months Ended
 June 30,

$ in thousands

2014


2013


2014


2013

Average Balances*:








Agency RMBS:








15 year fixed-rate, at amortized cost

1,490,857


1,949,617


1,544,072


1,997,076

30 year fixed-rate, at amortized cost

6,277,003


11,524,578


6,501,011


11,512,548

ARM, at amortized cost

526,816


69,149


407,650


83,227

Hybrid ARM, at amortized cost

2,441,988


447,599


2,154,029


487,269

MBS-CMO, at amortized cost

505,949


505,811


490,979


504,182

Non-Agency RMBS, at amortized cost (1)

3,241,721


3,815,772


3,382,454


3,530,088

GSE CRT, at amortized cost

418,635



366,914


CMBS, at amortized cost

2,788,361


2,491,250


2,677,553


2,275,552

Residential loans, at amortized cost

2,240,066


807,876


2,114,219


415,132

Commercial loans, at amortized cost

94,541


2,919


86,653


2,919

Average MBS and Loans portfolio

20,025,937


21,614,571


19,725,534


20,807,993

Average Portfolio Yields (2):








Agency RMBS:








15 year fixed-rate

2.57%


2.17%


2.69%


2.18%

30 year fixed-rate

3.03%


2.77%


3.09%


2.81%

ARM

2.29%


2.39%


2.31%


2.24%

Hybrid ARM

2.23%


2.41%


2.28%


2.37%

MBS - CMO

3.42%


1.84%


3.77%


1.65%

Non-Agency RMBS

4.70%


4.54%


4.44%


4.58%

GSE CRT

4.04%


—%


4.37%


—%

CMBS

4.54%


4.72%


4.52%


4.73%

Residential loans

3.66%


3.41%


3.60%


3.38%

Commercial loans

8.72%


11.21%


8.49%


11.21%

Average MBS and Loans portfolio

3.48%


3.25%


3.50%


3.23%

Average Borrowings*:








Agency RMBS

10,040,134


13,185,918


9,865,448


13,063,927

Non-Agency RMBS

2,790,149


2,815,765


2,895,918


2,669,977

GSE CRT

307,237



261,052


CMBS (3)

2,033,655


1,989,660


2,032,975


1,832,302

Exchangeable senior notes

400,000


400,000


400,000


242,222

Asset-backed securities

1,975,573


747,883


1,870,367


382,257

Total borrowed funds

17,546,748


19,139,226


17,325,760


18,190,685

Maximum borrowings during the period (4)

17,765,146


19,710,901


17,765,146


19,710,901

 

Average Cost of Funds (5):








Agency RMBS

0.32%


0.40%


0.34%


0.41%

Non-Agency RMBS

1.55%


1.54%


1.53%


1.63%

GSE CRT

1.50%


—%


1.47%


—%

CMBS (3)

1.24%


1.44%


1.31%


1.46%

Exchangeable senior notes

5.61%


5.62%


5.61%


5.60%

Asset-backed securities

3.20%


2.88%


3.18%


2.85%

Unhedged cost of funds (6)

1.09%


0.88%


1.10%


0.81%

Hedged / Effective cost of funds (Non-GAAP measure)

2.28%


1.66%


2.30%


1.62%

Average Equity (7):

2,470,933


2,774,374


2,403,467


2,743,484

Average debt/equity ratio (average during period)

7.10x


6.90x


7.21x


6.63x

Debt/equity ratio (as of period end)

6.82x


7.63x


6.82x


7.63x

 

*        Average amounts for each period are based on weighted month-end balances; all percentages are annualized. For the three and six months ended June 30, 2014, the average balances are presented on an amortized cost basis.



(1)     Non-Agency RMBS average balance excludes securities of $26.0 million for a future securitization not yet settled.

(2)     Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the Company's average of the amortized cost of the investments. All yields are annualized.

(3)     CMBS average borrowing and cost of funds include borrowings under repurchase agreements and secured loans.

(4)     Amount represents the maximum borrowings at month-end during each of the respective periods.

(5)     Average cost of funds is calculated by dividing annualized interest expense by the Company's average borrowings.

(6)     Excludes amortization of deferred swap losses from de-designation.

(7)     Average equity is calculated based on a weighted balance basis.

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SOURCE Invesco Mortgage Capital Inc.

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