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Invesco Mortgage Capital Inc. Reports Third Quarter 2012 Financial Results

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ATLANTA, Oct. 30, 2012 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20110131/MM39469LOGO-b )

The Company reported net income of $84.1 million after deducting the preferred dividend of $2.7 million, or $0.72 per common share (basic and diluted), for the quarter ended September 30, 2012 compared to $79.8 million, or $0.68 per common share (basic and diluted), for the quarter ended June 30, 2012.  The Company also reported its book value per common share as of September 30, 2012 was $20.93 compared to $18.40 per common share as of June 30, 2012.

"We're pleased to announce a solid third quarter results.  During the quarter, we increased our earnings to $0.72 per share, grew book value per share by 13.8%, increased our earning assets and lowered leverage," said Richard King, President and Chief Executive Officer.  "We accomplished this by positioning our portfolio to benefit from Federal Reserve purchases of MBS and we used the appreciation in our investment portfolio to both increase earning assets and strengthen our balance sheet.  We believe our hybrid strategy puts us in the best position to invest in this environment."

 

($ in millions, except per share amounts)


Q3 '12

Q2 '12


(unaudited)

(unaudited)

Average Earning Assets (at amortized costs)

$16,955.1

$15,595.1

Average Borrowed Funds

14,440.3

13,449.7

Average Equity

$2,329.9

$2,171.7




Interest Income

$140.5

$139.0

Interest Expense

60.3

56.7

Net Interest Income

80.2

82.3

Other Income

16.6

7.2

Operating Expenses

10.0

9.7

Net Income

86.8

79.8

Preferred Dividend

2.7

-

Net Income after Preferred Dividend

$84.1

$79.8




Average Portfolio Yield

3.31%

3.57%

Average Cost of Funds

1.67%

1.69%

Debt to Equity Ratio

5.8

6.3

Return on Average Equity

14.44%

14.70%

Book Value per Common Share (Diluted)

$20.93

$18.40

Earnings per Common share (Basic and Diluted)

$0.72

$0.68

Dividend per Common share

$0.65

$0.65

Dividend per Preferred share

$0.479

-

 

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $18.3 billion as of September 30, 2012, an increase of $2.3 billion from June 30, 2012.  For the quarter ended September 30, 2012, average earning assets were $17.0 billion representing an increase of $1.4 billion from June 30, 2012.  The portfolio generated interest income of $140.5 million which was up $1.5 million from June 30, 2012. 

For the quarter ended September 30, 2012, the Company had average borrowings of approximately $14.4 billion and interest expense including cost of hedging of $60.3 million, compared to $13.4 billion and $56.7 million, respectively, for the second quarter of 2012.  Our average cost of funds was 1.67% and 1.69% for the third quarter of 2012 and the second quarter of 2012, respectively. 

Operating expenses for the third quarter of 2012 totalled $10.0 million compared to $9.7 million for the second quarter of 2012.  The ratio of operating expenses to average equity in the third quarter of 2012 decreased 0.07% to 1.72%.

The Company declared a common stock dividend of $0.65 per common share for the third quarter of 2012.  The dividend was paid on October 29, 2012.

The Company declared a preferred stock dividend of $0.479 per preferred share for the third quarter of 2012.  The dividend was paid on October 25, 2012.

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. (NYSE: IVZ), a leading independent global investment management company.  Additional information is available at www.invescomortgagecapital.com.

Earnings Call

Members of the investment community and the general public are invited to listen to the Company's earnings conference call, Wednesday, October 31, 2012, at 8:30 a.m. ET, by calling one of the following numbers:

US/Canada Toll Free:    888-942-8507 
International:                 415-228-4839  
Passcode:                    Invesco

An audio replay will be available until 5:00 pm ET on November 14, 2012 by calling:

800-447-7319 (North America
+1 203-369-1155 (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, 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.  Forward-looking statements include statements with respect to our 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 our expectations. We caution investors not to rely unduly on any forward-looking statements and urge 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 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

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 





Three Months Ended


Nine Months Ended





September 30,


September 30,

$ in thousands, except per share data

2012


2011


2012


2011

















Revenues













Interest income


140,477



138,291



421,442



315,808


Interest expense


60,327



50,452



172,312



100,237


Net interest income


80,150



87,839



249,130



215,571

















Other income













Gain on sale of investments


12,836



3,637



24,978



8,442


Equity in earnings/(loss) and fair value change in













     unconsolidated ventures


3,262



(993)



6,231



2,738


Unrealized loss on interest rate swaps and swaptions


(808)



(453)



(2,851)



(655)


Realized and unrealized credit default swap income


1,348



858



2,694



4,649


Total other income


16,638



3,049



31,052



15,174

















Expenses













Management fee – related party


9,053



7,884



26,372



17,612


General and administrative


959



829



3,132



2,855


Total expenses


10,012



8,713



29,504



20,467


Net income


86,776



82,175



250,678



210,278


Net income attributable to non-controlling interest


1,026



1,091



3,025



3,948


Net income attributable to Invesco Mortgage Capital Inc.


85,750



81,084



247,653



206,330


Dividends to preferred shareholders


2,682



-



2,682



-


Net income attributable to common shareholders


83,068



81,084



244,971



206,330

















Earnings per share:













Net income attributable to common shareholders













     (basic/diluted)


0.72



0.79



2.12



2.70


Dividends declared per common share


0.65



0.80



1.95



2.77


Weighted average number of shares of common stock:














Basic


115,412



103,028



115,405



76,311



Diluted


116,868



104,472



116,858



77,750















































 

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

$ in thousands, except share and per share amounts

As of



September 30,


December 31,

ASSETS

2012


2011










(Unaudited)











Mortgage-backed securities, at fair value


18,324,208



14,214,149

Cash and cash equivalents


190,848



197,224

Restricted cash


13,473



74,496

Investment related receivable


7,608



160,424

Investments in unconsolidated ventures, at fair value


55,654



68,793

Accrued interest receivable


61,759



54,167

Derivative assets, at fair value


1,866



1,339

Other assets


1,810



1,575


Total assets


18,657,226



14,772,167








LIABILITIES AND EQUITY






Liabilities:






Repurchase agreements


14,876,501



12,253,038

Derivative liability, at fair value


471,841



396,780

Dividends and distributions payable


78,628



75,933

Investment related payable


622,731



107,032

Accrued interest payable


11,809



12,377

Accounts payable and accrued expenses


657



556

Due to affiliate


9,628



9,038


Total liabilities


16,071,795



12,854,754








Equity:






Preferred Stock, par value $0.01 per share; 50,000,000 shares







authorized, 7.75% series A cumulative redeemable, $25 liquidation







preference, 5,600,000 and no shares issued and outstanding at







 September 30, 2012 and December 31, 2011, respectively


135,359



-

Common Stock, par value $0.01 per share; 450,000,000 shares







authorized, 115,414,186 and 115,395,695 shares issued and







outstanding, at September 30, 2012 and December 31, 2011, respectively


1,154



1,154

Additional paid in capital


2,299,950



2,299,543

Accumulated other comprehensive income (loss)


112,543



(393,291)

Retained earnings (distributions in excess of earnings)


4,855



(15,068)


Total shareholders' equity


2,553,861



1,892,338








Non-controlling interest


31,570



25,075


Total equity


2,585,431



1,917,413









Total liabilities and equity


18,657,226



14,772,167









Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of September 30, 2012:












Net  



Period-end



Quarterly







Unamortized




Unrealized




Weighted   



Weighted



Weighted





Principal


Premium


Amortized


Gain/


Fair


Average



Average  



Average  


$ in thousands

Balance


(Discount)


Cost


(Loss), net


Value


Coupon(1)



Yield(2)



Yield(3)


Agency RMBS:




















15 year fixed-rate

 2,099,509 


110,129


2,209,638


74,540


2,284,178


 4.10 

%


 2.65 

%


 2.40 

%


30 year fixed-rate

 9,419,335 


620,748


10,040,083


328,440


10,368,523


 4.37 

%


 3.12 

%


 2.92 

%


ARM

 119,157 


3,768


122,925


3,046


125,971


 3.17 

%


 2.68 

%


 2.75 

%


Hybrid ARM

 615,578 


14,813


630,391


20,892


651,283


 3.20 

%


 2.64 

%


 2.61 

%



Total Agency pass-through

 12,253,579 


749,458


13,003,037


426,918


13,429,955


 4.25 

%


 3.01 

%


 2.81 

%























Agency-CMO(4)

 1,346,339 


(828,433)


517,906


2,681


520,587


 2.88 

%


 3.58 

%


 2.22 

%


Non-Agency RMBS(5)

 2,829,094 


(235,582)


2,593,512


32,281


2,625,793


 4.12 

%


 4.87 

%


 4.91 

%


CMBS

 1,623,395 


1,266


1,624,661


123,212


1,747,873


 5.44 

%


 5.31 

%


 5.24 

%

Total

 18,052,407 


(313,291)


17,739,116


585,092


18,324,208


 4.23 

%


 3.51 

%


 3.31 

%











































(1) Net weighted average coupon as of September 30, 2012 ("WAC") is presented net of servicing and other fees.





(2) Average yield based on amortized cost as of September 30, 2012 incorporates future prepayment and loss assumptions.





(3) For the three months ended September 30, 2012, the presentation of the quarterly weighted average yield has been changed to be based on amortized cost to be more consistent with the period-end weighted average yield.  Prior periods will be adjusted accordingly for comparative purposes. Average yield based on average amortized cost for the three months ended September 30, 2012 incorporates future prepayment and loss assumptions.   





(4) Agency-CMO held by the Company are 14.1% interest only securities.






(5) The non-Agency RMBS held by the Company is 85.5% variable rate, 9.8% fixed rate, and 4.7% floating rate based on fair value.























Constant Prepayment Rates (CPR)

The CPR of our portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income. The following table shows the three month CPR for our RMBS compared to bonds with similar characteristics ("Cohorts"):

 


September 30, 2012


June 30, 2012


Company


Cohort


Company


Cohort









15 year Agency RMBS

14.6


23.4


11.3


21.6

30 year Agency RMBS

13.1


20.7


12.3


18.9

Agency Hybrid ARM RMBS

20.0


NA


18.1


NA

Non-Agency RMBS

16.2


NA


16.2


NA

Overall

14.3


NA


13.3


NA

Repurchase Agreements

The following table summarizes the Company's borrowings by type of investment for the periods ended September 30, 2012 and December 31, 2011:

 


$ in thousands


September 30, 2012



December 31, 2011











Weighted








Weighted








Weighted



Average





Weighted



Average








Average



Remaining





Average



Remaining





Amount


Interest



Maturity


Amount


Interest



Maturity





Outstanding


Rate



(Days)


Outstanding


Rate



(Days)



Agency RMBS



11,710,680


0.41

%


18



9,491,538


0.38

%


22



Non-Agency RMBS



1,915,915


1.77

%


25



1,916,620


1.79

%


22



CMBS



1,249,906


1.56

%


19



844,880


1.55

%


22



Total



14,876,501


0.68

%


19



12,253,038


0.68

%


22


 


Interest Rate Hedges

The following table summarizes our hedging activity as of September 30, 2012:

 

$ in thousands






Fixed Interest Rate



Counterparty

Notional

Maturity Date


in Contract



The Bank of New York Mellon


100,000


5/24/2013


1.83%



The Bank of New York Mellon


200,000


6/15/2013


1.73%



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, Inc.


300,000


1/24/2016


2.12%



The Bank of New York Mellon


300,000


1/24/2016


2.13%



Morgan Stanley Capital Services, Inc.


300,000


4/5/2016


2.48%



Citibank, N.A.


300,000


4/15/2016


1.67%



The Bank of New York Mellon


500,000


4/15/2016


2.24%



Credit Suisse International


500,000


4/15/2016


2.27%



JPMorgan Chase Bank, N.A.


500,000


5/16/2016


2.31%



Goldman Sachs Bank USA


500,000


5/24/2016


2.34%



Wells Fargo Bank, N.A.


250,000


6/15/2016


2.67%



Goldman Sachs Bank USA


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%



Morgan Stanley Capital Services, Inc.


100,000


4/5/2018


3.10%



JPMorgan Chase Bank, N.A.


200,000


5/15/2018


2.93%



UBS AG


500,000


5/24/2018


1.10%



The Royal Bank of Scotland Plc


500,000


9/5/2018


1.04%



Wells Fargo Bank, N.A.


200,000


3/15/2021


3.14%



Citibank, N.A.


200,000


5/25/2021


2.83%



Total


7,750,000




2.14%



 

Average Balances

The following table shows the average balances for the three and nine months ended September 30, 2012 and 2011:

 


















As of and for the


As of and for the





Three Months ended


Nine Months ended





September 30,


September 30,



$ in thousands

2012 


2011


2012


2011



Average Balances*:













Agency RMBS:














15 year fixed-rate, at amortized cost

 2,262,090 



2,323,010



2,365,084



2,097,350




30 year fixed-rate, at amortized cost

 9,244,544 



5,514,277



7,969,201



3,985,708




ARM, at amortized cost

 136,990 



109,952



161,715



81,295




Hybrid ARM, at amortized cost

 796,446 



1,297,070



1,175,280



894,151




MBS-CMO, at amortized cost

 502,646 



126,300



450,419



75,258



Non-Agency RMBS, at amortized cost

 2,496,031 



2,555,216



2,391,076



1,895,121



CMBS, at amortized cost

 1,516,371 



1,364,914



1,329,005



902,722



Average MBS portfolio

 16,955,118 



13,290,739



15,841,780



9,931,605

















Average Portfolio Yields: (1)













Agency RMBS:














15 year fixed-rate,  

2.40%



2.88%



2.60%



3.04%




30 year fixed-rate

2.92%



3.71%



3.22%



3.63%




ARM

2.75%



3.16%



2.63%



3.02%




Hybrid ARM

2.61%



2.60%



2.67%



2.63%




MBS-CMO

2.22%



3.21%



2.21%



4.69%



Non-Agency RMBS

4.91%



6.50%



5.30%



7.13%



CMBS

5.24%



5.46%



5.41%



5.32%



Average MBS portfolio

3.31%



4.16%



3.55%



4.24%

















Average Borrowings*:














Agency RMBS

 11,452,398 



8,399,111



10,884,302



6,468,159




Non-Agency RMBS

 1,842,351 



1,998,255



1,767,130



1,383,534




CMBS

 1,145,575 



1,069,243



980,341



737,356



Total borrowed funds

 14,440,324 



11,466,609



13,631,773



8,589,049



Maximum borrowings during the period(2)

 14,890,062 



12,181,845



14,890,062



12,181,845

















Average Cost of Funds: (3)














Agency RMBS

0.41%



0.25%



0.37%



0.25%




Non-Agency RMBS

1.77%



1.39%



1.78%



1.37%




CMBS

1.59%



1.35%



1.57%



1.28%




Unhedged cost of funds

0.68%



0.55%



0.64%



0.52%




Hedged cost of funds

1.67%



1.76%



1.69%



1.56%

















Average Equity: (4)

 2,329,921 



1,847,320



2,198,633



1,526,080



Average debt/equity ratio (average

   during period)

6.20x



6.21x



6.20x



5.63x



Debt/equity ratio (as of period end)

5.75x



6.33x



5.75x



6.33x

















* Average amounts for each period are based on weighted month end balances, all percentages are annualized.  For the three and nine months ended September 30, 2012, the average balances have been changed to be presented by the average of the amortized cost.  Prior periods will be adjusted accordingly for comparative purposes.



(1) Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by our average of the amortized cost of the investments.



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



(3) Average cost of funds is calculated by dividing interest expense, by our average borrowings.



(4) Average equity is calculated based on a weighted average basis.


 

SOURCE Invesco Mortgage Capital Inc.

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