ATLANTA, May 5, 2021
/PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the
"Company") today announced financial results for the quarter ended
March 31, 2021.
Financial Summary:
- Net loss per common share of $0.09 compared to net income per common share of
$0.59 in Q4 2020
- Core earnings* per common share of $0.11 compared to $0.10 per common share in Q4 2020
- Common stock dividend of $0.09
per common share compared to $0.08
per common share in Q4 2020
- Book value per common share** of $3.65 compared to $3.86 per common share at Q4 2020
- Economic return*** of (3.1%) compared to 13.5% in Q4 2020
Update from John
Anzalone, Chief Executive Officer
"We are pleased to announce core earnings of $0.11 per common share for the first quarter of
2021. The increase in our core earnings was largely a result of the
successful deployment of $161.0
million in proceeds from common equity capital raises during
the quarter into Agency residential mortgage-backed securities
("Agency RMBS") investments, in addition to an attractive
reinvestment environment in the latter half of the quarter. Our
higher core earnings covered the increase in our common stock
dividend to $0.09 per common share.
At quarter-end, almost all of our $9.1
billion investment portfolio was invested in Agency RMBS,
and we maintained a sizeable balance of unrestricted cash and
unencumbered investments totaling $692.9
million.
"Despite continued strong demand from the Federal Reserve and
banks, lower coupon Agency RMBS underperformed during the quarter
as volatility increased and hedge adjusted returns became less
attractive. The higher interest rate environment and expectations
for slowing prepayment speeds led to a repricing of premiums on
specified pool Agency RMBS. These developments resulted in a 5.4%
decrease in book value per common share and a (3.1%) economic
return for the quarter. As we move into the second quarter, slowing
prepayment speeds and persistent demand from the Federal Reserve
are expected to provide support for Agency RMBS valuations."
* 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.
|
** Book value per
common share is calculated as total stockholders' equity less the
liquidation preference of the Company's 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 March 31, 2021 is defined as the change
in book value per common share from December 31, 2020 to
March 31, 2021 of ($0.21); plus dividends declared of $0.09
per common share; divided by the December 31, 2020 book value per
common share of $3.86. Economic return for quarter ended December
31, 2020 is defined as the change in book value per common share
from September 30, 2020 to December 31, 2020 of $0.39; plus
dividends declared of $0.08 per common share; divided by the
September 30, 2020 book value per common share of
$3.47.
|
Key performance indicators for the quarters ended March 31,
2021 and December 31, 2020 are
summarized in the table below.
($ in millions,
except share amounts)
|
Q1 '21
|
Q4 '20
|
Variance
|
Average
Balances
|
(unaudited)
|
(unaudited)
|
|
Average earning
assets (at amortized cost)
|
$9,330.1
|
|
$7,697.0
|
|
$1,633.1
|
|
Average
borrowings
|
$8,347.4
|
|
$6,879.9
|
|
$1,467.5
|
|
Average stockholders'
equity*
|
$1,184.8
|
|
$1,021.6
|
|
$163.2
|
|
|
|
|
|
U.S. GAAP
Financial Measures
|
|
|
|
Total interest
income
|
$40.0
|
|
$35.9
|
|
$4.1
|
|
Total interest
expense
|
($1.7)
|
|
($2.5)
|
|
$0.8
|
|
Net interest
income
|
$41.7
|
|
$38.3
|
|
$3.4
|
|
Total
expenses
|
$6.9
|
|
$6.4
|
|
$0.5
|
|
Net income (loss)
attributable to common stockholders
|
($20.4)
|
|
$111.6
|
|
($132.0)
|
|
|
|
|
|
Average earning asset
yields
|
1.72
|
%
|
1.86
|
%
|
(0.14)
|
%
|
Average cost of
funds
|
(0.08)
|
%
|
(0.14)
|
%
|
0.06
|
%
|
Average net interest
rate margin
|
1.80
|
%
|
2.00
|
%
|
(0.20)
|
%
|
|
|
|
|
Period-end weighted
average asset yields**
|
1.97
|
%
|
1.99
|
%
|
(0.02)
|
%
|
Period-end weighted
average cost of funds
|
0.15
|
%
|
0.21
|
%
|
(0.06)
|
%
|
Period-end weighted
average net interest rate margin
|
1.82
|
%
|
1.78
|
%
|
0.04
|
%
|
|
|
|
|
Book value per common
share***
|
$3.65
|
|
$3.86
|
|
($0.21)
|
|
Earnings (loss) per
common share (basic)
|
($0.09)
|
|
$0.59
|
|
($0.68)
|
|
Earnings (loss) per
common share (diluted)
|
($0.09)
|
|
$0.59
|
|
($0.68)
|
|
Debt-to-equity
ratio
|
5.6
|
x
|
5.3
|
x
|
0.3
|
x
|
|
|
|
|
Non-GAAP Financial
Measures****
|
|
|
|
Core
earnings
|
$25.2
|
|
$18.6
|
|
$6.6
|
|
Effective interest
income
|
$40.0
|
|
$35.9
|
|
$4.1
|
|
Effective interest
expense
|
$8.3
|
|
$6.9
|
|
$1.4
|
|
Effective net
interest income
|
$31.8
|
|
$29.0
|
|
$2.8
|
|
|
|
|
|
Effective
yield
|
1.72
|
%
|
1.86
|
%
|
(0.14)
|
%
|
Effective cost of
funds
|
0.40
|
%
|
0.40
|
%
|
—
|
|
Effective interest
rate margin
|
1.32
|
%
|
1.46
|
%
|
(0.14)
|
%
|
|
|
|
|
Core earnings per
common share
|
$0.11
|
|
$0.10
|
|
$0.01
|
|
Economic
debt-to-equity ratio
|
6.6
|
x
|
6.6
|
x
|
—
|
|
|
* Average
stockholders' equity is calculated based on the weighted month-end
balance of total stockholders' equity excluding equity attributable
to preferred stockholders.
|
** 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 stockholders' equity less the
liquidation preference of the Company's 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 economic 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 (loss) 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 loss attributable to common stockholders for the first
quarter of 2021 was $20.4 million
compared to net income attributable to common stockholders of
$111.6 million for the fourth quarter
of 2020. Net loss attributable to common stockholders was primarily
driven by a $331.9 million net loss
on investments that exceeded net gains on derivatives of
$287.0 million during the
quarter.
The Company raised $161.0 million
of net proceeds from the issuance of common stock during the
quarter. Book value per common share for the first quarter of 2021
decreased 5.4% to $3.65 as higher
interest rates and an increase in interest rate volatility led to
wider interest rate spreads on our 30 year Agency RMBS holdings. In
addition, the sharp increase in mortgage rates and reduced investor
demand for prepayment protection resulted in lower valuation
premiums on our Agency RMBS specified pools. The benchmark 10 year
U.S. Treasury rate rose 83 basis points to 1.74%.
Total average assets increased to $9.3
billion from $7.7 billion in
the fourth quarter of 2020, and total average borrowings increased
to $8.3 billion from $6.9 billion in the fourth quarter of 2020. To
capitalize on the sharp increase in interest rates and lower
valuations on investment opportunities during the quarter, the
Company sold $5.5 billion of lower
yielding Agency RMBS and purchased $7.0
billion of higher yielding Agency RMBS. Purchases were
funded with proceeds from the sales, paydowns of securities and by
leveraging proceeds from the issuance of common stock. During the
first quarter of 2021, the Company generated $25.2 million in core earnings, an increase of
$6.6 million (35.1%) over the fourth
quarter of 2020. Higher core earnings were driven by a $2.8 million increase in effective net interest
income and a $2.2 million increase in
to-be-announced securities forward contract ("TBA") dollar roll
income.
Average net interest rate margin decreased 20 basis points to
1.80% in the first quarter of 2021 primarily due to lower average
earning asset yields. Average earning asset yields decreased 14
basis points to 1.72% in the first quarter of 2021 primarily due to
a change in asset mix to a higher portfolio concentration in Agency
securities. The Company's Agency RMBS portfolio consists of 2.0% to
3.0% coupon 30 year fixed-rate securities as of March 31,
2021. Average cost of funds was (0.08%) in the first quarter of
2021 compared to (0.14%) during the fourth quarter of 2020. The
increase in average cost of funds during the first quarter was due
to higher average borrowings and lower amortization of net deferred
gains on de-designated interest rate swaps.
The Company's debt-to-equity ratio was 5.6x as of March 31,
2021 compared to 5.3x as of December 31,
2020. The increase in debt-to-equity ratio reflects a change
in asset mix to a higher portfolio concentration in Agency RMBS.
The Company's economic debt-to-equity ratio was 6.6x as of
March 31, 2021 and December 31,
2020.
Total expenses for the first quarter of 2021 increased to
approximately $6.9 million compared
to $6.4 million for the fourth
quarter of 2020 primarily due to higher management and professional
fees. The ratio of annualized total expenses to average
stockholders' equity* decreased to 2.32% from 2.49% for
the fourth quarter of 2020 due to higher stockholders' equity in
the first quarter.
As previously announced on March 26, 2021, the Company
declared a common stock dividend of $0.09 per share paid on April 27, 2021 to
its stockholders of record as of April 9, 2021. The Company
declared the following dividends on May 4,
2021: a Series A Preferred Stock dividend of $0.4844 per share payable on July 26, 2021 to its stockholders of record as of
July 1, 2021, a Series B Preferred
Stock dividend of $0.4844 per share
payable on June 28, 2021 to its
stockholders of record as of June 5,
2021 and a Series C Preferred Stock dividend of $0.46875 per share payable on June 28, 2021 to its stockholders of record as of
June 5, 2021.
* The ratio of
annualized total expenses to average stockholders' equity is
calculated as the annualized sum of management fees plus general
and administrative expenses divided by average stockholders'
equity.
|
About Invesco Mortgage Capital Inc.
Invesco Mortgage Capital Inc. is a real estate investment trust
that primarily focuses on investing in, financing and managing
mortgage-backed securities and other mortgage-related assets.
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, May 6, 2021, 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 May 20,
2021 by calling:
888-566-0452 (North America) or
1-203-369-3048 (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
ongoing spread and the economic and operational impact of the
COVID-19 pandemic, the market for our target assets, our financial
performance, including our core earnings, economic return,
comprehensive income and changes in our book value, our intention
and ability to pay dividends, 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.
Investor Relations Contact: Jack
Bateman, 404-439-3323
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three Months
Ended
|
$ in thousands,
except share amounts
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
Interest
income
|
|
|
|
|
|
Mortgage-backed and
credit risk transfer securities
|
39,434
|
|
|
35,329
|
|
|
185,536
|
|
Commercial and other
loans
|
576
|
|
|
529
|
|
|
1,163
|
|
Total interest
income
|
40,010
|
|
|
35,858
|
|
|
186,699
|
|
Interest
expense
|
|
|
|
|
|
Repurchase agreements
(1)
|
(1,660)
|
|
|
(2,452)
|
|
|
79,042
|
|
Secured
loans
|
—
|
|
|
—
|
|
|
6,646
|
|
Total interest
expense
|
(1,660)
|
|
|
(2,452)
|
|
|
85,688
|
|
Net interest
income
|
41,670
|
|
|
38,310
|
|
|
101,011
|
|
|
|
|
|
|
|
Other income
(loss)
|
|
|
|
|
|
Gain (loss) on
investments, net
|
(331,857)
|
|
|
34,805
|
|
|
(755,483)
|
|
(Increase) decrease
in provision for credit losses
|
938
|
|
|
(1,768)
|
|
|
—
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
(94)
|
|
|
343
|
|
|
170
|
|
Gain (loss) on
derivative instruments, net
|
286,961
|
|
|
57,186
|
|
|
(910,779)
|
|
Realized and
unrealized credit derivative income (loss), net
|
—
|
|
|
—
|
|
|
(33,052)
|
|
Net gain (loss) on
extinguishment of debt
|
—
|
|
|
(2)
|
|
|
(4,806)
|
|
Other investment
income (loss), net
|
(16)
|
|
|
201
|
|
|
803
|
|
Total other income
(loss)
|
(44,068)
|
|
|
90,765
|
|
|
(1,703,147)
|
|
Expenses
|
|
|
|
|
|
Management fee –
related party
|
4,884
|
|
|
4,510
|
|
|
10,953
|
|
General and
administrative
|
1,993
|
|
|
1,852
|
|
|
3,103
|
|
Total
expenses
|
6,877
|
|
|
6,362
|
|
|
14,056
|
|
Net income (loss)
attributable to Invesco Mortgage Capital Inc.
|
(9,275)
|
|
|
122,713
|
|
|
(1,616,192)
|
|
Dividends to
preferred stockholders
|
11,107
|
|
|
11,106
|
|
|
11,107
|
|
Net income (loss)
attributable to common stockholders
|
(20,382)
|
|
|
111,607
|
|
|
(1,627,299)
|
|
Net income (loss) per
share:
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
|
|
|
|
|
Basic
|
(0.09)
|
|
|
0.59
|
|
|
(10.38)
|
|
Diluted
|
(0.09)
|
|
|
0.59
|
|
|
(10.38)
|
|
|
|
(1)
|
Negative interest
expense on repurchase agreements for the three months ended
March 31, 2021 and three months ended December 31, 2020
consists of $3.7 million and $3.5 million of current period
interest expense on repurchase agreements, respectively, and $5.4
million and $6.0 million of amortization of net deferred gains on
de-designated interest rate swaps, respectively. For further
information on amortization of amounts classified in accumulated
other comprehensive income before the Company discontinued hedge
accounting, see Note 8 and Note 12 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 March 31,
2021.
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
|
|
|
Three Months
Ended
|
$ in
thousands
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
Net income
(loss)
|
(9,275)
|
|
|
122,713
|
|
|
(1,616,192)
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
Unrealized gain (loss)
on mortgage-backed and credit risk transfer securities,
net
|
981
|
|
|
(6,352)
|
|
|
(186,605)
|
|
Reclassification of
unrealized (gain) loss on sale of mortgage-backed and credit risk
transfer securities to gain (loss) on investments, net
|
—
|
|
|
(3,184)
|
|
|
36,957
|
|
Reclassification of
unrealized loss on available-for-sale securities to (increase)
decrease in provision for credit losses
|
—
|
|
|
1,768
|
|
|
—
|
|
Reclassification of
amortization of net deferred (gain) loss on de-designated interest
rate swaps to repurchase agreements interest expense
|
(5,368)
|
|
|
(5,981)
|
|
|
(10,067)
|
|
Currency translation
adjustments on investment in unconsolidated venture
|
609
|
|
|
655
|
|
|
480
|
|
Total other
comprehensive income (loss)
|
(3,778)
|
|
|
(13,094)
|
|
|
(159,235)
|
|
Comprehensive income
(loss)
|
(13,053)
|
|
|
109,619
|
|
|
(1,775,427)
|
|
Less: Dividends to
preferred stockholders
|
(11,107)
|
|
|
(11,106)
|
|
|
(11,107)
|
|
Comprehensive income
(loss) attributable to common stockholders
|
(24,160)
|
|
|
98,513
|
|
|
(1,786,534)
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
As
of
|
$ in thousands,
except share amounts
|
March 31,
2021
|
|
December 31,
2020
|
ASSETS
|
|
|
|
Mortgage-backed
securities, at fair value (including pledged securities of
$8,641,007 and $7,614,935, respectively; net of allowance for
credit losses of $830 and $1,768, respectively)
|
9,099,742
|
|
|
8,172,182
|
|
Cash and cash
equivalents
|
198,357
|
|
|
148,011
|
|
Restricted
cash
|
380,678
|
|
|
244,573
|
|
Due from
counterparties
|
11,440
|
|
|
1,078
|
|
Investment related
receivable
|
18,536
|
|
|
15,840
|
|
Derivative assets, at
fair value
|
17,193
|
|
|
10,004
|
|
Other
assets
|
36,890
|
|
|
41,163
|
|
Total
assets
|
9,762,836
|
|
|
8,632,851
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Repurchase
agreements
|
8,240,887
|
|
|
7,228,699
|
|
Derivative
liabilities, at fair value
|
4,273
|
|
|
6,344
|
|
Dividends
payable
|
24,888
|
|
|
18,970
|
|
Investment related
payable
|
1,454
|
|
|
274
|
|
Accrued interest
payable
|
547
|
|
|
823
|
|
Collateral held
payable
|
1,337
|
|
|
3,546
|
|
Accounts payable and
accrued expenses
|
1,967
|
|
|
1,448
|
|
Due to
affiliate
|
5,551
|
|
|
5,589
|
|
Total
liabilities
|
8,280,904
|
|
|
7,265,693
|
|
Commitments and
contingencies (See Note 14) (1)
|
|
|
|
Stockholders'
equity:
|
|
|
|
Preferred Stock, par
value $0.01 per share; 50,000,000 shares authorized:
|
|
|
|
7.75% Series A
Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and
outstanding ($140,000 aggregate liquidation preference)
|
135,356
|
|
|
135,356
|
|
7.75%
Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock:
6,200,000 shares issued and outstanding ($155,000 aggregate
liquidation preference)
|
149,860
|
|
|
149,860
|
|
7.50%
Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock:
11,500,000 shares issued and outstanding ($287,500 aggregate
liquidation preference)
|
278,108
|
|
|
278,108
|
|
Common Stock, par
value $0.01 per share; 450,000,000 shares authorized; 246,397,710
and 203,222,108 shares issued and outstanding,
respectively
|
2,464
|
|
|
2,032
|
|
Additional paid in
capital
|
3,548,230
|
|
|
3,387,552
|
|
Accumulated other
comprehensive income
|
54,827
|
|
|
58,605
|
|
Retained earnings
(distributions in excess of earnings)
|
(2,686,913)
|
|
|
(2,644,355)
|
|
Total stockholders'
equity
|
1,481,932
|
|
|
1,367,158
|
|
Total liabilities and
stockholders' equity
|
9,762,836
|
|
|
8,632,851
|
|
|
|
(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 March 31, 2021.
|
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
- economic 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 Company did not present core earnings for the first half of
2020 or for the year ended December 31,
2020 because core earnings excluded the material adverse
impact of the market disruption caused by the COVID-19 pandemic on
the Company's financial condition. In addition, core earnings for
the first half of 2020 and the year ended December 31, 2020 was not indicative of the
reduced earnings potential of the Company's current investment
portfolio.
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; TBA dollar roll income; (gain) loss on foreign currency
transactions, net; amortization of net deferred (gain) loss on
de-designated interest rate swaps; and net (gain) loss on
extinguishment of debt. 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 sheets. 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 as 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
|
$ in thousands,
except per share data
|
March 31,
2021
|
|
December 31,
2020
|
Net income (loss)
attributable to common stockholders
|
(20,382)
|
|
|
111,607
|
|
Adjustments:
|
|
|
|
(Gain) loss on
investments, net
|
331,857
|
|
|
(34,805)
|
|
Realized (gain) loss
on derivative instruments, net (1)
|
(282,250)
|
|
|
(64,859)
|
|
Unrealized (gain) loss
on derivative instruments, net (1)
|
(9,260)
|
|
|
4,351
|
|
TBA dollar roll income
(2)
|
10,545
|
|
|
8,367
|
|
(Gain) loss on foreign
currency transactions, net (3)
|
16
|
|
|
(65)
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate swaps
(4)
|
(5,368)
|
|
|
(5,981)
|
|
Net (gain) loss on
extinguishment of debt
|
—
|
|
|
2
|
|
Subtotal
|
45,540
|
|
|
(92,990)
|
|
Core earnings
attributable to common stockholders
|
25,158
|
|
|
18,617
|
|
Basic income (loss)
per common share
|
(0.09)
|
|
|
0.59
|
|
Core earnings per
share attributable to common stockholders (5)
|
0.11
|
|
|
0.10
|
|
|
|
(1)
|
U.S. GAAP gain (loss)
on derivative instruments, net on the condensed consolidated
statements of operations includes the following
components:
|
|
|
|
Three Months
Ended
|
$ in
thousands
|
March 31,
2021
|
|
December 31,
2020
|
Realized gain (loss)
on derivative instruments, net
|
282,250
|
|
|
64,859
|
|
Unrealized gain
(loss) on derivative instruments, net
|
9,260
|
|
|
(4,351)
|
|
Contractual net
interest income (expense) on interest rate swaps
|
(4,549)
|
|
|
(3,322)
|
|
Gain (loss) on
derivative instruments, net
|
286,961
|
|
|
57,186
|
|
|
|
(2)
|
A TBA dollar roll is
a series of derivative transactions where TBAs with the same
specified issuer, term and coupon but different settlement dates
are simultaneously bought and sold. The TBA settling in the later
month typically prices at a discount to the TBA settling in the
earlier month. TBA dollar roll income represents the price
differential between the TBA price for current month settlement
versus the TBA price for forward month settlement. The Company
includes TBA dollar roll income in core earnings because it is the
economic equivalent of interest income on the underlying Agency
securities, less an implied financing cost, over the forward
settlement period. TBA dollar roll income is a component of gain
(loss) on derivative instruments, net on the Company's condensed
consolidated statements of operations.
|
|
|
(3)
|
U.S. GAAP other
investment income (loss), net on the condensed consolidated
statements of operations includes the following
components:
|
|
|
|
Three Months
Ended
|
$ in
thousands
|
March 31,
2021
|
|
December 31,
2020
|
Dividend
income
|
—
|
|
|
136
|
|
Gain (loss) on
foreign currency transactions, net
|
(16)
|
|
|
65
|
|
Other investment
income (loss), net
|
(16)
|
|
|
201
|
|
|
|
(4)
|
U.S. GAAP repurchase
agreements interest expense on the condensed consolidated
statements of operations includes the following
components:
|
|
|
|
Three Months
Ended
|
$ in
thousands
|
March 31,
2021
|
|
December 31,
2020
|
Interest expense on
repurchase agreement borrowings
|
3,708
|
|
|
3,529
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate
swaps
|
(5,368)
|
|
|
(5,981)
|
|
Repurchase agreements
interest expense
|
(1,660)
|
|
|
(2,452)
|
|
|
|
(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 table below presents the components of core earnings:
|
Three Months
Ended
|
$ in
thousands
|
March 31,
2021
|
|
December 31,
2020
|
Effective net
interest income (1)
|
31,753
|
|
|
29,007
|
|
TBA dollar roll
income
|
10,545
|
|
|
8,367
|
|
Dividend
income
|
—
|
|
|
136
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
(94)
|
|
|
343
|
|
(Increase) decrease
in provision for credit losses
|
938
|
|
|
(1,768)
|
|
Total
expenses
|
(6,877)
|
|
|
(6,362)
|
|
Total core
earnings
|
36,265
|
|
|
29,723
|
|
Dividends to
preferred stockholders
|
(11,107)
|
|
|
(11,106)
|
|
Core earnings
attributable to common stockholders
|
25,158
|
|
|
18,617
|
|
|
|
(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
Prior to 2021, the Company calculated effective interest income
(and by calculation, effective yield) as U.S. GAAP total interest
income adjusted for GSE CRT embedded derivative coupon interest
that was recorded as realized and unrealized credit derivative
income (loss), net. The Company included its GSE CRT embedded
derivative coupon interest in effective interest income because GSE
CRT coupon interest was not accounted for consistently under U.S.
GAAP. The Company accounted for GSE CRTs purchased prior to
August 24, 2015 as hybrid financial
instruments, but 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 was recorded as interest income,
whereas coupon interest on GSE CRTs accounted for as hybrid
financial instruments was recorded as realized and unrealized
credit derivative income (loss). The Company added back GSE CRT
embedded derivative coupon interest to its total interest income
because the Company considered GSE CRT embedded derivative coupon
interest a current component of its total interest income
irrespective of whether the Company elected the fair value option
for the GSE CRT or accounted for the GSE CRT as a hybrid financial
instrument. Effective interest income was equal to total interest
income for the three months ended March 31,
2021 and December 31, 2020
because the Company sold all of its GSE CRTs that were accounted
for as hybrid financial instruments during 2020.
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, net; 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 was 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, provides 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
|
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
Total interest
income
|
40,010
|
|
|
1.72
|
%
|
|
35,858
|
|
|
1.86
|
%
|
|
186,699
|
|
|
4.19
|
%
|
Add: GSE CRT embedded
derivative coupon interest recorded as realized and unrealized
credit derivative income (loss), net
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
4,718
|
|
|
0.10
|
%
|
Effective interest
income
|
40,010
|
|
|
1.72
|
%
|
|
35,858
|
|
|
1.86
|
%
|
|
191,417
|
|
|
4.29
|
%
|
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
|
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
$ 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
|
(1,660)
|
|
|
(0.08)
|
%
|
|
(2,452)
|
|
|
(0.14)
|
%
|
|
85,688
|
|
|
2.07
|
%
|
Add: Amortization of
net deferred gain (loss) on de-designated interest rate
swaps
|
5,368
|
|
|
0.26
|
%
|
|
5,981
|
|
|
0.35
|
%
|
|
10,067
|
|
|
0.24
|
%
|
Add (Less):
Contractual net interest expense (income) on interest rate swaps
recorded as gain (loss) on derivative instruments, net
|
4,549
|
|
|
0.22
|
%
|
|
3,322
|
|
|
0.19
|
%
|
|
(11,924)
|
|
|
(0.29)
|
%
|
Effective interest
expense
|
8,257
|
|
|
0.40
|
%
|
|
6,851
|
|
|
0.40
|
%
|
|
83,831
|
|
|
2.02
|
%
|
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
|
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
$ 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
|
41,670
|
|
|
1.80
|
%
|
|
38,310
|
|
|
2.00
|
%
|
|
101,011
|
|
|
2.12
|
%
|
Less: Amortization of
net deferred (gain) loss on de-designated interest rate
swaps
|
(5,368)
|
|
|
(0.26)
|
%
|
|
(5,981)
|
|
|
(0.35)
|
%
|
|
(10,067)
|
|
|
(0.24)
|
%
|
Add: GSE CRT embedded
derivative coupon interest recorded as realized and unrealized
credit derivative income (loss), net
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
4,718
|
|
|
0.10
|
%
|
Add (Less):
Contractual net interest income (expense) on interest rate swaps
recorded as gain (loss) on derivative instruments, net
|
(4,549)
|
|
|
(0.22)
|
%
|
|
(3,322)
|
|
|
(0.19)
|
%
|
|
11,924
|
|
|
0.29
|
%
|
Effective net
interest income
|
31,753
|
|
|
1.32
|
%
|
|
29,007
|
|
|
1.46
|
%
|
|
107,586
|
|
|
2.27
|
%
|
Economic Debt-to-Equity Ratio
The following tables show the allocation of the Company's
stockholders' equity to its target assets, the Company's
debt-to-equity ratio, and the Company's economic debt-to-equity
ratio as of March 31, 2021 and December
31, 2020. The Company's debt-to-equity ratio is calculated
in accordance with U.S. GAAP and is the ratio of total debt to
total stockholders' equity.
The Company presents an economic debt-to-equity ratio, a
non-GAAP financial measure of leverage that considers the impact of
the off-balance sheet financing of its investments in TBAs that are
accounted for as derivative instruments under U.S. GAAP. The
Company includes its TBAs at implied cost basis in its measure of
leverage because a forward contract to acquire Agency RMBS in the
TBA market carries similar risks to Agency RMBS purchased in the
cash market and funded with on-balance sheet liabilities.
Similarly, a contract for the forward sale of Agency RMBS has
substantially the same effect as selling the underlying Agency RMBS
and reducing the Company's on-balance sheet funding commitments.
The Company believes that presenting its economic debt-to-equity
ratio, when considered together with its U.S. GAAP financial
measure of debt-to-equity ratio, provides information that is
useful to investors in understanding how management evaluates
at-risk leverage and gives investors a comparable statistic to
those other mortgage REITs who also invest in TBAs and present a
similar non-GAAP measure of leverage.
March 31,
2021
|
$ in
thousands
|
Agency
RMBS
|
Credit Portfolio
(1)
|
Total
|
Mortgage-backed
securities
|
8,997,918
|
|
101,824
|
|
9,099,742
|
|
Cash and cash
equivalents (2)
|
198,357
|
|
—
|
|
198,357
|
|
Restricted cash
(3)
|
380,678
|
|
—
|
|
380,678
|
|
Derivative assets, at
fair value (3)
|
16,634
|
|
559
|
|
17,193
|
|
Other
assets
|
30,340
|
|
36,526
|
|
66,866
|
|
Total
assets
|
9,623,927
|
|
138,909
|
|
9,762,836
|
|
|
|
|
|
Repurchase
agreements
|
8,240,887
|
|
—
|
|
8,240,887
|
|
Derivative
liabilities, at fair value (3)
|
4,273
|
|
—
|
|
4,273
|
|
Other
liabilities
|
31,155
|
|
4,589
|
|
35,744
|
|
Total
liabilities
|
8,276,315
|
|
4,589
|
|
8,280,904
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
1,347,612
|
|
134,320
|
|
1,481,932
|
|
Debt-to-equity ratio
(4)
|
6.1
|
|
—
|
|
5.6
|
|
Economic
debt-to-equity ratio (5)
|
7.3
|
|
—
|
|
6.6
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, non-Agency RMBS, a commercial loan and
unconsolidated joint ventures are included in credit
portfolio.
|
(2)
|
Cash and cash
equivalents is allocated based on the Company's financing strategy
for each asset class.
|
(3)
|
Restricted cash and
derivative assets and liabilities are allocated based on the
hedging strategy for each asset class.
|
(4)
|
Debt-to-equity ratio
is calculated as the ratio of total repurchase agreements to total
stockholders' equity.
|
(5)
|
Economic
debt-to-equity ratio is calculated as the ratio of total repurchase
agreements and TBAs at implied cost basis ($1.5 billion as of
March 31, 2021) to total stockholders' equity.
|
December 31,
2020
|
$ in
thousands
|
Agency
RMBS
|
Credit Portfolio
(1)
|
Total
|
Mortgage-backed
securities
|
8,050,865
|
|
121,317
|
|
8,172,182
|
|
Cash and cash
equivalents (2)
|
148,011
|
|
—
|
|
148,011
|
|
Restricted cash
(3)
|
243,963
|
|
610
|
|
244,573
|
|
Derivative assets, at
fair value (3)
|
9,893
|
|
111
|
|
10,004
|
|
Other
assets
|
17,606
|
|
40,475
|
|
58,081
|
|
Total
assets
|
8,470,338
|
|
162,513
|
|
8,632,851
|
|
|
|
|
|
Repurchase
agreements
|
7,228,699
|
|
—
|
|
7,228,699
|
|
Derivative
liabilities, at fair value (3)
|
5,537
|
|
807
|
|
6,344
|
|
Other
liabilities
|
27,114
|
|
3,536
|
|
30,650
|
|
Total
liabilities
|
7,261,350
|
|
4,343
|
|
7,265,693
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
1,208,988
|
|
158,170
|
|
1,367,158
|
|
Debt-to-equity ratio
(4)
|
6.0
|
|
—
|
|
5.3
|
|
Economic
debt-to-equity ratio (5)
|
7.4
|
|
—
|
|
6.6
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, non-Agency RMBS, a commercial loan and
unconsolidated joint ventures are included in credit
portfolio.
|
(2)
|
Cash and cash
equivalents is allocated based on the Company's financing strategy
for each asset class.
|
(3)
|
Restricted cash and
derivative assets and liabilities are allocated based on the
hedging strategy for each asset class.
|
(4)
|
Debt-to-equity ratio
is calculated as the ratio of total repurchase agreements to total
stockholders' equity.
|
(5)
|
Economic
debt-to-equity ratio is calculated as the ratio of total repurchase
agreements and TBAs at implied cost basis ($1.8 billion as of
December 31, 2020) to total stockholders' equity.
|
Average Balances
The table below presents information related to the Company's
average earning assets, average earning assets yields, average
borrowings and average cost of funds for the following periods:
|
Three Months
Ended
|
$ in
thousands
|
March 31,
2021
|
|
December 31,
2020
|
|
March 31,
2020
|
Average earning
assets (1)
|
9,330,134
|
|
7,697,029
|
|
17,837,749
|
Average earning asset
yields (2)
|
1.72 %
|
|
1.86 %
|
|
4.19 %
|
|
|
|
|
|
|
Average borrowings
(3)
|
8,347,354
|
|
6,879,929
|
|
16,531,997
|
Average cost of funds
(4)
|
(0.08) %
|
|
(0.14) %
|
|
2.07 %
|
|
|
(1)
|
Average balances for
each period are based on weighted month-end balances.
|
(2)
|
Average earning asset
yields for each period are calculated by dividing interest income,
including amortization of premiums and discounts, by average
earning assets based on the amortized cost of the investments. All
yields are annualized.
|
(3)
|
Average borrowings
for each period are based on weighted month-end
balances.
|
(4)
|
Average cost of funds
is calculated by dividing annualized interest expense including
amortization of net deferred gain (loss) on de-designated interest
rate swaps by the Company's average borrowings.
|
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SOURCE Invesco Mortgage Capital Inc.