ATLANTA, May 4, 2022
/PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the
"Company") today announced financial results for the quarter ended
March 31, 2022.
- Net loss per common share of $0.72 compared to $0.23 in Q4 2021
- Earnings available for distribution per common
share(1) of $0.12 compared
to $0.10 in Q4 2021
- Common stock dividend of $0.09
per common share, unchanged from Q4 2021
- Book value per common share(2) of $2.08 compared to $2.91 at Q4 2021
- Economic return(3) of (25.4%) compared to (7.7%) in
Q4 2021
Update from John
Anzalone, Chief Executive Officer
"During the first quarter of 2022, earnings available for
distribution increased to $0.12 per
common share. Slower prepayment speeds on specified pool
collateral, attractive returns in the dollar roll market, and
attractive yields on new investments were all supportive of
earnings available for distribution.
"Our book value declined as a result of a historically
challenging environment for Agency residential mortgage-backed
securities ("Agency RMBS"). Expectations for the removal of
monetary policy accommodation by the Federal Reserve accelerated
further as the central bank seeks to combat the highest rate of
inflation in decades. The resulting interest rate volatility and
the anticipated supply and demand imbalance placed significant
pressure on Agency RMBS valuations. Higher interest rates also
caused premiums on specified pool collateral to fall, amplifying
the book value decline.
"At quarter-end, substantially all of our $8.1 billion investment portfolio, including
to-be-announced securities forward contracts ("TBAs") at implied
cost basis, was invested in Agency RMBS, and we continued to
maintain a sizeable balance of unrestricted cash and unencumbered
investments totaling $664.7
million.
"Increased expectations for accelerated interest rate hikes and
balance sheet reduction by the Federal Reserve continue to weigh on
Agency RMBS valuations as we enter the second quarter. Our outlook
remains cautious in the near term; accordingly, we seek to maintain
relatively low leverage. We expect the environment for Agency RMBS
to improve later this year given the attractiveness of spreads
relative to other fixed income sectors, slow prepayment rates, and
the decline in net supply. Further, we continue to evaluate
additional investment opportunities to complement our Agency RMBS
strategy by expanding our target assets and portfolio
diversification."
(1)
|
Earnings available for
distribution (and by calculation, earnings available for
distribution per common share) is a non-Generally Accepted
Accounting Principles ("GAAP") financial measure. Refer to the
section entitled "Non-GAAP Financial Measures" for important
disclosures and a reconciliation to the most comparable U.S. GAAP
measure.
|
(2)
|
Book value per common
share is calculated as total stockholders' equity less the
liquidation preference of the Company's Series B Preferred stock
($155.0 million) and Series C Preferred Stock ($287.5 million),
divided by total common shares outstanding.
|
(3)
|
Economic return for the
quarter ended March 31, 2022 is defined as the change in book value
per common share from December 31, 2021 to March 31, 2022 of
($0.83); plus dividends declared of $0.09 per common share; divided
by the December 31, 2021 book value per common share of $2.91.
Economic return for quarter ended December 31, 2021 is defined as
the change in book value per common share from September 30, 2021
to December 31, 2021 of ($0.34); plus dividends declared of $0.09
per common share; divided by the September 30, 2021 book value per
common share of $3.25.
|
Key performance indicators for the quarters ended March 31,
2022 and December 31, 2021 are summarized in the table
below.
($ in millions, except
share amounts)
|
Q1 '22
|
Q4 '21
|
Variance
|
Average Balances
|
(unaudited)
|
(unaudited)
|
|
Average earning assets
(at amortized cost)
|
$7,005.2
|
$8,371.3
|
($1,366.1)
|
Average
borrowings
|
$6,219.7
|
$7,441.5
|
($1,221.8)
|
Average stockholders'
equity (1)
|
$1,137.3
|
$1,306.4
|
($169.1)
|
|
|
|
|
U.S. GAAP Financial Measures
|
|
|
|
Total interest
income
|
$42.2
|
$42.9
|
($0.7)
|
Total interest
expense
|
($2.1)
|
($3.2)
|
$1.1
|
Net interest
income
|
$44.3
|
$46.0
|
($1.7)
|
Total
expenses
|
$7.3
|
$7.2
|
$0.1
|
Net income (loss)
attributable to common stockholders
|
($236.8)
|
($73.0)
|
($163.8)
|
|
|
|
|
Average earning asset
yields
|
2.41%
|
2.05%
|
0.36%
|
Average cost of
funds
|
(0.14%)
|
(0.17%)
|
0.03%
|
Average net interest
rate margin
|
2.55%
|
2.22%
|
0.33%
|
|
|
|
|
Period-end weighted
average asset yields (2)
|
2.60%
|
2.16%
|
0.44%
|
Period-end weighted
average cost of funds
|
0.37%
|
0.14%
|
0.23%
|
Period-end weighted
average net interest rate margin
|
2.23%
|
2.02%
|
0.21%
|
|
|
|
|
Book value per common
share (3)
|
$2.08
|
$2.91
|
($0.83)
|
Earnings (loss) per
common share (basic)
|
($0.72)
|
($0.23)
|
($0.49)
|
Earnings (loss) per
common share (diluted)
|
($0.72)
|
($0.23)
|
($0.49)
|
Debt-to-equity
ratio
|
5.2x
|
5.0x
|
0.2x
|
|
|
|
|
Non-GAAP Financial Measures
(4)
|
|
|
|
Earnings available for
distribution
|
$38.1
|
$33.2
|
$4.9
|
Effective interest
expense
|
$1.8
|
$4.9
|
($3.1)
|
Effective net interest
income
|
$40.4
|
$37.9
|
$2.5
|
|
|
|
|
Effective cost of
funds
|
0.11%
|
0.26%
|
(0.15%)
|
Effective interest rate
margin
|
2.30%
|
1.79%
|
0.51%
|
|
|
|
|
Earnings available for
distribution per common share
|
$0.12
|
$0.10
|
$0.02
|
Economic debt-to-equity
ratio
|
6.5x
|
6.2x
|
0.3x
|
|
|
(1)
|
Average stockholders'
equity is calculated based on the weighted month-end balance of
total stockholders' equity excluding equity attributable to
preferred stockholders.
|
(2)
|
Period-end weighted
average asset yields are based on amortized cost as of period end
and incorporate future prepayment and loss assumptions.
|
(3)
|
Book value per common
share is calculated as total stockholders' equity less the
liquidation preference of the Company's Series B Preferred Stock
($155.0 million) and Series C Preferred Stock ($287.5 million),
divided by total common shares outstanding.
|
(4)
|
Earnings available for
distribution (and by calculation, earnings available for
distribution per common share), 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 2022 was $236.8 million
compared to $73.0 million for the
fourth quarter of 2021. The change in net loss attributable to
common stockholders was primarily driven by a $504.4 million net loss on investments in the
first quarter of 2022 compared to a $90.4
million net loss on investments in the fourth quarter of
2021 and a $238.9 million net gain on
derivatives in the first quarter of 2022 compared to a $13.3 million net loss on derivatives in the
fourth quarter of 2021. The Company earned $44.3 million of net interest income in the first
quarter of 2022 compared to $46.0
million of net interest income in the fourth quarter of
2021.
Earnings available for distribution increased to $38.1 million for the first quarter of 2022
compared to $33.2 million for the
fourth quarter of 2021 primarily due to a $2.9 million increase in TBA dollar roll income
and a $2.5 million increase in
effective net interest income.
Book value per common share for the first quarter of 2022
decreased 28.5% to $2.08 and is
estimated to be between $1.77 and
$1.83 as of April 30, 2022. The anticipation of an
accelerated timeline for balance sheet reduction and the sharp
pivot to tighter monetary policy by the Federal Reserve has
pressured valuations lower in 2022. Premium valuations on the
Company's specified pool collateral have also deteriorated as
higher rates reduced investor demand for prepayment protection.
Furthermore, the Russian invasion of Ukraine has led to a reduction in demand for
risk assets as volatility and uncertainty increased. The benchmark
10 year U.S. Treasury rate increased 83 basis points to 2.34%
during the quarter, while the difference between the 30 year and 2
year U.S. Treasury rates decreased 106 basis points to 0.11% given
expectations of rapid short-term interest rate hikes by the Federal
Reserve.
The Company reduced the size of its investment portfolio,
including TBAs, by 15% as of March 31, 2022 compared to
December 31, 2021 given its expectation that the Federal
Reserve's December 2021 announcement
to accelerate the pace of tapering could result in an increase in
market volatility and lower valuations on the Company's holdings.
Total average earning assets were $7.0
billion in the first quarter of 2022, down from $8.4 billion in the fourth quarter of 2021. Total
average borrowings were $6.2 billion
in the first quarter of 2022, down from $7.4
billion in the fourth quarter of 2021.
Average net interest rate margin increased 33 basis points to
2.55% in the first quarter of 2022 compared to the fourth quarter
of 2021 primarily due to higher average earning asset yields.
Average earning asset yields increased 36 basis points to 2.41% in
the first quarter of 2022 compared to the fourth quarter of 2021
primarily due to the Company's rotation into higher yielding Agency
RMBS. The Company's Agency RMBS portfolio consisted primarily of
2.0% to 3.0% coupon 30 year fixed-rate securities as of
March 31, 2022. Average cost of funds was (0.14%) for the
first quarter of 2022 compared to (0.17%) for the fourth quarter of
2021.
The Company's debt-to-equity ratio was 5.2x as of March 31,
2022 compared to 5.0x as of December 31, 2021, and its
economic debt-to-equity ratio was 6.5x as of March 31, 2022
compared to 6.2x as of December 31, 2021. Leverage ratios rose
primarily due to the impact of lower Agency RMBS valuations on the
Company's stockholders' equity.
Total expenses for the first quarter of 2022 were approximately
$7.3 million compared to $7.2 million in the fourth quarter of 2021. The
ratio of annualized total expenses to average stockholders'
equity(1) increased to 2.57% in the first quarter of
2022 from 2.20% in the fourth quarter of 2021 primarily due to the
Company's lower average stockholders' equity base.
As previously announced on March 28,
2022, the Company declared a common stock dividend of
$0.09 per share paid on April 27, 2022 to its stockholders of record as
of April 8, 2022. The Company
declared the following dividends on May 3,
2022: a Series B Preferred Stock dividend of $0.4844 per share payable on June 27, 2022 to its stockholders of record as of
June 5, 2022 and a Series C Preferred
Stock dividend of $0.46875 per share
payable on June 27, 2022 to its
stockholders of record as of June 5,
2022.
On May 3, 2022, the Company's
Board of Directors approved a repurchase plan for its preferred
stock. Under the terms of the plan, the Company is authorized to
repurchase up to three million shares of its Series B Preferred
Stock and five million shares of its Series C Preferred Stock.
On May 3, 2022, the Company's
Board of Directors approved a one-for-ten reverse stock split of
the Company's common stock. The reverse stock split is expected to
take effect following the close of business on June 3, 2022 at which time every ten issued and
outstanding shares of the Company's common stock will be converted
into one share of the Company's common stock. The Company's common
stock is expected to begin trading on the New York Stock Exchange
on a post-split basis beginning on June 6,
2022 under a new CUSIP number: 46131B704. Stockholders of
record will be receiving information from Computershare Trust
Company, N.A., the Company's transfer agent, regarding their stock
ownership following the reverse stock split and cash in lieu of
fractional share payments, if applicable.
(1)
|
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 5, 2022, 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 19,
2022 by calling:
888-566-0058 (North America) or
1-203-369-3035 (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 earnings available for distribution,
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,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Interest income
|
|
|
|
|
|
Mortgage-backed and
other securities
|
41,637
|
|
42,331
|
|
39,434
|
Commercial
loan
|
537
|
|
525
|
|
576
|
Total interest income
|
42,174
|
|
42,856
|
|
40,010
|
Interest expense
|
|
|
|
|
|
Repurchase agreements
(1)
|
(2,104)
|
|
(3,181)
|
|
(1,660)
|
Total interest expense
|
(2,104)
|
|
(3,181)
|
|
(1,660)
|
Net interest income
|
44,278
|
|
46,037
|
|
41,670
|
|
|
|
|
|
|
Other income (loss)
|
|
|
|
|
|
Gain (loss) on
investments, net
|
(504,388)
|
|
(90,442)
|
|
(331,857)
|
(Increase) decrease in
provision for credit losses
|
—
|
|
—
|
|
938
|
Equity in earnings
(losses) of unconsolidated ventures
|
71
|
|
289
|
|
(94)
|
Gain (loss) on
derivative instruments, net
|
238,860
|
|
(13,348)
|
|
286,961
|
Other investment income
(loss), net
|
55
|
|
—
|
|
(16)
|
Total other income (loss)
|
(265,402)
|
|
(103,501)
|
|
(44,068)
|
Expenses
|
|
|
|
|
|
Management fee –
related party
|
5,274
|
|
5,309
|
|
4,884
|
General and
administrative
|
2,024
|
|
1,874
|
|
1,993
|
Total expenses
|
7,298
|
|
7,183
|
|
6,877
|
Net income
(loss)
|
(228,422)
|
|
(64,647)
|
|
(9,275)
|
Dividends to preferred
stockholders
|
8,394
|
|
8,394
|
|
11,107
|
Net income (loss)
attributable to common stockholders
|
(236,816)
|
|
(73,041)
|
|
(20,382)
|
Earnings (loss) per
share:
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
|
|
|
|
|
Basic
|
(0.72)
|
|
(0.23)
|
|
(0.09)
|
Diluted
|
(0.72)
|
|
(0.23)
|
|
(0.09)
|
|
|
(1)
|
Negative interest
expense on repurchase agreements is due to amortization of net
deferred gains on de-designated interest rate swaps that exceeds
current period interest expense on repurchase agreements. For
further information on amortization of amounts classified in
accumulated other comprehensive income before the Company
discontinued hedge accounting, see Note 9 and Note 13 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, 2022.
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
|
|
|
Three Months Ended
|
$ in thousands
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Net income
(loss)
|
(228,422)
|
|
(64,647)
|
|
(9,275)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
Unrealized gain (loss) on mortgage-backed securities,
net
|
(2,421)
|
|
(907)
|
|
981
|
Reclassification of amortization of net deferred (gain) loss
on de-designated interest
rate swaps to repurchase agreements interest
expense
|
(5,196)
|
|
(5,602)
|
|
(5,368)
|
Currency translation adjustments on investment in
unconsolidated venture
|
(200)
|
|
(239)
|
|
609
|
Total other
comprehensive income (loss)
|
(7,817)
|
|
(6,748)
|
|
(3,778)
|
Comprehensive income
(loss)
|
(236,239)
|
|
(71,395)
|
|
(13,053)
|
Less: Dividends to preferred stockholders
|
(8,394)
|
|
(8,394)
|
|
(11,107)
|
Comprehensive income
(loss) attributable to common stockholders
|
(244,633)
|
|
(79,789)
|
|
(24,160)
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
As of
|
$ in thousands, except share
amounts
|
March 31, 2022
|
|
December 31, 2021
|
ASSETS
|
|
|
|
Mortgage-backed
securities, at fair value (including pledged securities of
$5,607,777 and $7,326,175, respectively)
|
5,992,494
|
|
7,804,259
|
U.S. Treasury
securities, at fair value (included pledged securities of $482,445
as of March 31, 2022)
|
482,445
|
|
—
|
Cash and cash
equivalents
|
251,724
|
|
357,134
|
Restricted
cash
|
245,809
|
|
219,918
|
Due from
counterparties
|
47,793
|
|
7,985
|
Investment related
receivable
|
15,214
|
|
16,766
|
Derivative assets, at
fair value
|
17,674
|
|
270
|
Other assets
|
29,465
|
|
37,509
|
Total assets
|
7,082,618
|
|
8,443,841
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Repurchase
agreements
|
5,837,420
|
|
6,987,834
|
Derivative liabilities,
at fair value
|
77,613
|
|
14,356
|
Dividends
payable
|
29,693
|
|
29,689
|
Investment related
payable
|
1
|
|
—
|
Accrued interest
payable
|
1,143
|
|
1,171
|
Collateral held
payable
|
280
|
|
280
|
Accounts payable and
accrued expenses
|
2,083
|
|
1,887
|
Due to
affiliate
|
6,438
|
|
6,489
|
Total liabilities
|
5,954,671
|
|
7,041,706
|
Commitments and contingencies (See Note 15)
(1)
|
|
|
|
Stockholders' equity:
|
|
|
|
Preferred Stock, par
value $0.01 per share; 50,000,000 shares authorized:
|
|
|
|
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; 329,917,927 and
329,874,780 shares issued and outstanding, respectively
|
3,299
|
|
3,299
|
Additional paid in
capital
|
3,816,544
|
|
3,816,406
|
Accumulated other
comprehensive income
|
29,469
|
|
37,286
|
Retained earnings
(distributions in excess of earnings)
|
(3,149,333)
|
|
(2,882,824)
|
Total stockholders' equity
|
1,127,947
|
|
1,402,135
|
Total liabilities and stockholders' equity
|
7,082,618
|
|
8,443,841
|
|
|
(1)
|
See Note 15 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, 2022.
|
Non-GAAP Financial Measures
The table below shows the non-GAAP financial measures the
Company uses to analyze its operating results and the most directly
comparable U.S. GAAP measures. The Company believes these non-GAAP
measures are useful to investors in assessing its performance as
discussed further below.
Non-GAAP Financial Measure
|
|
Most Directly Comparable U.S. GAAP
Measure
|
Earnings available for
distribution (and by calculation,
earnings available for distribution per common share)
|
|
Net income (loss)
attributable to common stockholders (and
by calculation, basic earnings (loss) per common share)
|
Effective interest
expense (and by calculation, effective cost
of funds)
|
|
Total interest expense
(and by calculation, cost of funds)
|
Effective net interest
income (and by calculation, effective
interest rate margin)
|
|
Net interest income
(and by calculation, net interest rate
margin)
|
Economic debt-to-equity
ratio
|
|
Debt-to-equity
ratio
|
The non-GAAP financial measures used by the Company's management
should be analyzed in conjunction with U.S. GAAP financial measures
and should not be considered substitutes for U.S. GAAP financial
measures. In addition, the non-GAAP financial measures may not be
comparable to similarly titled non-GAAP financial measures of its
peer companies.
Earnings Available for Distribution
The Company's business objective is to provide attractive
risk-adjusted returns to its stockholders, primarily through
dividends and secondarily through capital appreciation. The Company
uses earnings available for distribution as a measure of its
investment portfolio's ability to generate income for distribution
to common stockholders and to evaluate its progress toward meeting
this objective. The Company calculates earnings available for
distribution 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 and amortization of net
deferred (gain) loss on de-designated interest rate swaps.
By excluding the gains and losses discussed above, the Company
believes the presentation of earnings available for distribution
provides a consistent measure of operating performance that
investors can use to evaluate its results over multiple reporting
periods and, to a certain extent, compare to its peer companies.
However, because not all of the Company's peer companies use
identical operating performance measures, the Company's
presentation of earnings available for distribution may not be
comparable to other similarly titled measures used by its peer
companies. The Company excludes the impact of gains and losses when
calculating earnings available for distribution because (i) when
analyzed in conjunction with its U.S. GAAP results, earnings
available for distribution provides additional detail of its
investment portfolio's earnings capacity and (ii) 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
statements of operations. In addition, certain gains and losses
represent one-time events. The Company may add and has added
additional reconciling items to its earnings available for
distribution calculation as appropriate.
To maintain qualification as a REIT, U.S. federal income tax law
generally requires that the Company distributes at least 90% of its
REIT taxable income annually, determined without regard to the
deduction for dividends paid and excluding net capital gains. The
Company has historically distributed at least 100% of its REIT
taxable income. Because the Company views earnings available for
distribution as a consistent measure of its investment portfolio's
ability to generate income for distribution to common stockholders,
earnings available for distribution is one metric, but not the
exclusive metric, that the Company's board of directors uses to
determine the amount, if any, and the payment date of dividends on
common stock. However, earnings available for distribution should
not be considered as an indication of the Company's taxable income,
a guaranty of its ability to pay dividends or as a proxy for the
amount of dividends it may pay, as earnings available for
distribution excludes certain items that impact its cash needs.
Earnings available for distribution is an incomplete measure of
the Company's financial performance and there are other factors
that impact the achievement of the Company's business objective.
The Company cautions that earnings available for distribution
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.
The table below provides a reconciliation of U.S. GAAP net
income (loss) attributable to common stockholders to earnings
available for distribution for the following periods:
|
Three Months Ended
|
$ in thousands, except per share
data
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Net income (loss)
attributable to common stockholders
|
(236,816)
|
|
(73,041)
|
|
(20,382)
|
Adjustments:
|
|
|
|
|
|
(Gain) loss on investments, net
|
504,388
|
|
90,442
|
|
331,857
|
Realized (gain) loss on derivative instruments, net
(1)
|
(283,429)
|
|
8,239
|
|
(282,250)
|
Unrealized (gain) loss on derivative instruments, net
(1)
|
45,853
|
|
2,602
|
|
(9,260)
|
TBA
dollar roll income (2)
|
13,401
|
|
10,517
|
|
10,545
|
(Gain) loss on foreign currency transactions, net
(3)
|
(55)
|
|
—
|
|
16
|
Amortization of net deferred (gain) loss on de-designated
interest rate swaps (4)
|
(5,196)
|
|
(5,602)
|
|
(5,368)
|
Subtotal
|
274,962
|
|
106,198
|
|
45,540
|
Earnings available for
distribution
|
38,146
|
|
33,157
|
|
25,158
|
Basic income (loss) per
common share
|
(0.72)
|
|
(0.23)
|
|
(0.09)
|
Earnings available for
distribution per common share (5)
|
0.12
|
|
0.10
|
|
0.11
|
|
(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,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Realized gain (loss) on
derivative instruments, net
|
283,429
|
|
(8,239)
|
|
282,250
|
Unrealized gain (loss)
on derivative instruments, net
|
(45,853)
|
|
(2,602)
|
|
9,260
|
Contractual net
interest income (expense) on interest rate swaps
|
1,284
|
|
(2,507)
|
|
(4,549)
|
Gain (loss) on
derivative instruments, net
|
238,860
|
|
(13,348)
|
|
286,961
|
|
|
(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 earnings available for
distribution 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)
|
Gain (loss) on foreign
currency transactions, net is included in other investment income
(loss), net on the condensed consolidated statements of
operations.
|
(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,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Interest expense on
repurchase agreement borrowings
|
3,092
|
|
2,421
|
|
3,708
|
Amortization of net
deferred (gain) loss on de-designated interest rate
swaps
|
(5,196)
|
|
(5,602)
|
|
(5,368)
|
Repurchase agreements
interest expense
|
(2,104)
|
|
(3,181)
|
|
(1,660)
|
|
(5) Earnings
available for distribution per common share is equal to earnings
available for distribution divided by the basic weighted average
number of common shares outstanding.
|
The table below presents the components of earnings available
for distribution:
|
Three Months Ended
|
$ in thousands
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Effective net interest
income (1)
|
40,366
|
|
37,928
|
|
31,753
|
TBA dollar roll
income
|
13,401
|
|
10,517
|
|
10,545
|
Equity in earnings
(losses) of unconsolidated ventures
|
71
|
|
289
|
|
(94)
|
(Increase) decrease in
provision for credit losses
|
—
|
|
—
|
|
938
|
Total
expenses
|
(7,298)
|
|
(7,183)
|
|
(6,877)
|
Subtotal
|
46,540
|
|
41,551
|
|
36,265
|
Dividends to preferred
stockholders
|
(8,394)
|
|
(8,394)
|
|
(11,107)
|
Earnings available for
distribution
|
38,146
|
|
33,157
|
|
25,158
|
|
(1) See below for a
reconciliation of net interest income to effective net interest
income, a non-GAAP measure.
|
Effective Interest Expense/Effective Cost of Funds/Effective
Net Interest Income/Effective Interest Rate Margin
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 and amortization of net
deferred gains (losses) on de-designated interest rate swaps that
is recorded as repurchase agreements interest expense.
The Company believes the presentation of 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 table reconciles 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, 2022
|
|
December 31, 2021
|
|
March 31, 2021
|
$ 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
|
(2,104)
|
|
(0.14%)
|
|
(3,181)
|
|
(0.17%)
|
|
(1,660)
|
|
(0.08%)
|
Add: Amortization of
net deferred gain
(loss) on de-designated
interest
rate swaps
|
5,196
|
|
0.33%
|
|
5,602
|
|
0.30%
|
|
5,368
|
|
0.26%
|
Add (less): Contractual
net interest
expense (income) on interest
rate
swaps recorded as gain (loss)
on
derivative instruments,
net
|
(1,284)
|
|
(0.08%)
|
|
2,507
|
|
0.13%
|
|
4,549
|
|
0.22%
|
Effective interest
expense
|
1,808
|
|
0.11%
|
|
4,928
|
|
0.26%
|
|
8,257
|
|
0.40%
|
The following table reconciles net interest income to effective
net interest income and net interest rate margin to effective
interest rate margin for the following periods:
|
Three Months Ended
|
|
March 31, 2022
|
|
December 31, 2021
|
|
March 31, 2021
|
$ 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
|
44,278
|
|
2.55%
|
|
46,037
|
|
2.22%
|
|
41,670
|
|
1.80%
|
Less: Amortization of
net deferred
(gain) loss on
de-designated
interest rate swaps
|
(5,196)
|
|
(0.33%)
|
|
(5,602)
|
|
(0.30%)
|
|
(5,368)
|
|
(0.26%)
|
Add (less): Contractual
net interest
income (expense) on interest
rate
swaps recorded as gain (loss)
on
derivative instruments,
net
|
1,284
|
|
0.08%
|
|
(2,507)
|
|
(0.13%)
|
|
(4,549)
|
|
(0.22%)
|
Effective net interest
income
|
40,366
|
|
2.30%
|
|
37,928
|
|
1.79%
|
|
31,753
|
|
1.32%
|
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, 2022 and December 31, 2021. 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, 2022
$ in thousands
|
Agency RMBS
|
Credit Portfolio (1)
|
|
Total
|
Mortgage-backed
securities
|
5,922,797
|
69,697
|
|
5,992,494
|
U.S. Treasury
securities
|
482,445
|
—
|
|
482,445
|
Cash and cash
equivalents (2)
|
251,724
|
—
|
|
251,724
|
Restricted cash
(3)
|
245,809
|
—
|
|
245,809
|
Derivative assets, at
fair value (3)
|
17,437
|
237
|
|
17,674
|
Other assets
|
63,693
|
28,779
|
|
92,472
|
Total assets
|
6,983,905
|
98,713
|
|
7,082,618
|
|
|
|
|
|
Repurchase
agreements
|
5,837,420
|
—
|
|
5,837,420
|
Derivative liabilities,
at fair value (3)
|
77,606
|
7
|
|
77,613
|
Other
liabilities
|
26,421
|
13,217
|
|
39,638
|
Total liabilities
|
5,941,447
|
13,224
|
|
5,954,671
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
1,042,458
|
85,489
|
|
1,127,947
|
Debt-to-equity ratio
(4)
|
5.6
|
—
|
|
5.2
|
Economic debt-to-equity
ratio (5)
|
7.1
|
—
|
|
6.5
|
|
|
(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, 2022)
to total stockholders' equity.
|
December 31, 2021
$ in thousands
|
Agency RMBS
|
Credit Portfolio (1)
|
|
Total
|
Mortgage-backed
securities
|
7,732,281
|
71,978
|
|
7,804,259
|
Cash and cash
equivalents (2)
|
357,134
|
—
|
|
357,134
|
Restricted cash
(3)
|
219,918
|
—
|
|
219,918
|
Derivative assets, at
fair value (3)
|
—
|
270
|
|
270
|
Other assets
|
25,728
|
36,532
|
|
62,260
|
Total assets
|
8,335,061
|
108,780
|
|
8,443,841
|
|
|
|
|
|
Repurchase
agreements
|
6,987,834
|
—
|
|
6,987,834
|
Derivative liabilities,
at fair value (3)
|
14,356
|
—
|
|
14,356
|
Other
liabilities
|
35,596
|
3,920
|
|
39,516
|
Total liabilities
|
7,037,786
|
3,920
|
|
7,041,706
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
1,297,275
|
104,860
|
|
1,402,135
|
Debt-to-equity ratio
(4)
|
5.4
|
—
|
|
5.0
|
Economic debt-to-equity
ratio (5)
|
6.6
|
—
|
|
6.2
|
|
|
(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 ($1.6 billion as of
December 31, 2021) 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,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
Average earning assets
(1)
|
7,005,218
|
|
8,371,280
|
|
9,330,134
|
Average earning asset
yields (2)
|
2.41%
|
|
2.05%
|
|
1.72%
|
|
|
|
|
|
|
Average borrowings
(3)
|
6,219,694
|
|
7,441,461
|
|
8,347,354
|
Average cost of funds
(4)
|
(0.14%)
|
|
(0.17%)
|
|
(0.08%)
|
|
|
|
|
(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 average borrowings.
|
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SOURCE Invesco Mortgage Capital Inc.