ATLANTA, Nov. 2, 2022
/PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the
"Company") today announced financial results for the quarter ended
September 30, 2022.(1)
- Net loss per common share of $2.78 compared to a net loss of $3.52 in Q2 2022
- Earnings available for distribution per common
share(2) of $1.39 compared
to $1.40 in Q2 2022
- Common stock dividend of $0.65
per common share compared to $0.90 in
Q2 2022
- Book value per common share(3) of $12.80 compared to $16.16 at Q2 2022
- Economic return(4) of (16.8%) compared to (17.9%) in
Q2 2022
Update from John
Anzalone, Chief Executive Officer
"The difficult environment for Agency residential
mortgage-backed securities ("Agency RMBS") persisted during the
third quarter, as the sector recorded its worst quarterly
performance in over a decade. Book value declined as valuations on
our Agency RMBS holdings were pressured lower by sharply higher
interest rates, elevated volatility, reduced liquidity and a
general risk off tone in financial markets. Given a rapidly
evolving monetary policy landscape, our outlook on the sector
remains cautious in the near term. However, we believe the Agency
RMBS sector currently represents a compelling long-term
opportunity, as valuations remain at historically attractive
levels.
"Earnings available for distribution for the third quarter
remained strong at $1.39 per common
share given our rotation into higher yielding Agency RMBS, along
with favorable funding and a relatively low-cost legacy swap
portfolio. Further, wider spreads on our target assets have created
an attractive reinvestment environment that is supportive of
the earnings power of the portfolio.
"During the quarter, we remained focused on improving our
capital structure by repurchasing preferred stock and issuing
common stock through our at-the-market program. Since the inception
of the repurchase program in May
2022, we have repurchased 5.3 million shares of our Series B
and Series C Preferred Stock, representing approximately 30% of our
preferred stock outstanding prior to the start of the repurchase
program. Further, we continue to evaluate additional investment
opportunities to complement our Agency RMBS strategy by expanding
our target assets and portfolio diversification.
"Given the decrease in book value and repurchases of preferred
stock, our debt-to-equity ratio increased to 5.1x and our economic
debt-to-equity ratio(2) increased to 5.3x. At
quarter-end, substantially all of our $4.5
billion investment portfolio, including to-be-announced
securities forward contracts ("TBAs"), was invested in Agency RMBS,
and we maintained a sizeable balance of unrestricted cash and
unencumbered investments totaling $504.3
million."
|
(1) For all periods
presented in this press release, common share and per common share
amounts have been adjusted on a retroactive basis to reflect the
Company's one-for-ten reverse stock split, which was effected
following the close of business on June 3, 2022.
|
|
(2) Earnings available
for distribution (and by calculation, earnings available for
distribution per common share) and economic debt-to-equity ratio
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 measure.
|
|
(3) Book value per
common share is calculated as total stockholders' equity less the
liquidation preference of the Company's Series B Preferred Stock
and Series C Preferred Stock ($113.4 million and $195.4 million,
respectively, as of September 30, 2022 and $153.9 million and
$272.0 million, respectively, as of June 30, 2022), divided by
total common shares outstanding.
|
|
(4) Economic return for
the quarter ended September 30, 2022 is defined as the change
in book value per common share from June 30, 2022 to
September 30, 2022 of ($3.36); plus dividends declared of
$0.65 per common share; divided by the June 30, 2022 book
value per common share of $16.16. Economic return for the quarter
ended June 30, 2022 is defined as the change in book value per
common share from March 31, 2022 to June 30, 2022 of
($4.62); plus dividends declared of $0.90 per common share; divided
by the March 31, 2022 book value per common share of
$20.78.
|
Key performance indicators for the quarters ended
September 30, 2022 and June 30, 2022 are summarized in
the table below.
|
($ in millions, except
share amounts)
|
Q3 '22
|
Q2 '22
|
Variance
|
|
Average
Balances
|
(unaudited)
|
(unaudited)
|
|
|
Average earning assets
(at amortized cost)
|
$4,568.9
|
$4,663.3
|
($94.4)
|
|
Average
borrowings
|
$3,907.7
|
$4,059.4
|
($151.7)
|
|
Average stockholders'
equity (1)
|
$883.9
|
$947.9
|
($64.0)
|
|
|
|
|
|
U.S. GAAP Financial
Measures
|
|
|
|
|
Total interest
income
|
$49.7
|
$44.6
|
$5.1
|
|
Total interest
expense
|
$18.0
|
$3.5
|
$14.5
|
|
Net interest
income
|
$31.7
|
$41.1
|
($9.4)
|
|
Total
expenses
|
$5.9
|
$7.1
|
($1.2)
|
|
Net income (loss)
attributable to common stockholders
|
($94.6)
|
($116.1)
|
$21.5
|
|
|
|
|
|
Average earning asset
yields
|
4.35 %
|
3.82 %
|
0.53 %
|
|
Average cost of
funds
|
1.84 %
|
0.34 %
|
1.50 %
|
|
Average net interest
rate margin
|
2.51 %
|
3.48 %
|
(0.97 %)
|
|
|
|
|
|
Period-end weighted
average asset yields (2)
|
4.77 %
|
4.24 %
|
0.53 %
|
|
Period-end weighted
average cost of funds
|
3.27 %
|
1.38 %
|
1.89 %
|
|
Period-end weighted
average net interest rate margin
|
1.50 %
|
2.86 %
|
(1.36 %)
|
|
|
|
|
|
Book value per common
share (3)
|
$12.80
|
$16.16
|
($3.36)
|
|
Earnings (loss) per
common share (basic)
|
($2.78)
|
($3.52)
|
$0.74
|
|
Earnings (loss) per
common share (diluted)
|
($2.78)
|
($3.52)
|
$0.74
|
|
Debt-to-equity
ratio
|
5.1x
|
3.4x
|
1.7x
|
|
|
|
|
|
Non-GAAP Financial
Measures (4)
|
|
|
|
|
Earnings available for
distribution
|
$47.4
|
$46.1
|
$1.3
|
|
Effective interest
expense
|
($7.3)
|
($5.3)
|
($2.0)
|
|
Effective net interest
income
|
$57.0
|
$49.9
|
$7.1
|
|
|
|
|
|
Effective cost of
funds
|
(0.75 %)
|
(0.53 %)
|
(0.22 %)
|
|
Effective interest rate
margin
|
5.10 %
|
4.35 %
|
0.75 %
|
|
|
|
|
|
Earnings available for
distribution per common share
|
$1.39
|
$1.40
|
($0.01)
|
|
Economic debt-to-equity
ratio
|
5.3x
|
3.9x
|
1.4x
|
|
(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
and Series C Preferred Stock, ($113.4 million and $195.4 million,
respectively, as of September 30, 2022 and $153.9 million and
$272.0 million, respectively, as of June 30, 2022), 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 third
quarter of 2022 was $94.6 million
compared to $116.1 million for the
second quarter of 2022. The change was primarily driven by a
$260.8 million net loss on
investments in the third quarter compared to a $324.9 million net loss on investments in the
second quarter and a $133.5 million
net gain on derivatives in the third quarter compared to a
$181.7 million net gain on
derivatives in the second quarter. The Company earned $31.7 million of net interest income in the third
quarter compared to $41.1 million of
net interest income in the second quarter.
Earnings available for distribution increased to $47.4 million for the third quarter of 2022
compared to $46.1 million for the
second quarter of 2022 primarily due to a $7.1 million increase in effective net interest
income, a $2.2 million decrease in
preferred dividends and a $1.2
million decrease in total expenses that was partially offset
by a $9.7 million decrease in TBA
dollar roll income. Earnings available for distribution per common
share decreased $0.01 due to the
issuance of 2.3 million shares of common stock under the Company's
at-the-market program during the third quarter.
Book value per common share for the third quarter of 2022
decreased 21% to $12.80 as escalating
inflationary pressures led to increased expectations for tighter
monetary policy and elevated market volatility. Agency RMBS
valuations were sharply lower for the third consecutive quarter,
resulting in the sector's worst nine- and twelve-month performance
on record. Net losses on investments were partially offset by net
gains on derivatives and gains on repurchases of preferred stock.
Book value is estimated to be between $11.96 and $12.44
per common share as of October 31,
2022.
Total average earning assets were $4.6
billion in the third quarter of 2022, down from $4.7 billion in the second quarter of 2022. Total
average borrowings were $3.9 billion
in the third quarter, down from $4.1
billion in the second quarter. The Company reduced average
earnings assets and average borrowings given its expectations that
persistently elevated market volatility due to the Federal
Reserve's acceleration of monetary policy tightening could result
in lower valuations on the Company's assets.
Average net interest rate margin decreased 97 basis points to
2.51% in the third quarter of 2022 compared to the second quarter
of 2022 primarily due to a higher average cost of funds. Average
earning asset yields increased 53 basis points to 4.35% in the
third quarter compared to the second quarter primarily due to the
Company's rotation into higher yielding Agency RMBS. The Company's
Agency RMBS portfolio consisted primarily of 3.0% to 5.5% coupon 30
year fixed-rate securities as of September 30, 2022. Average
cost of funds increased 150 basis points to 1.84% in the third
quarter compared to the second quarter reflecting increases in the
Federal Funds target interest rate.
The Company's debt-to-equity ratio was 5.1x as of
September 30, 2022 compared to 3.4x as of June 30, 2022,
and its economic debt-to-equity ratio was 5.3x as of
September 30, 2022 compared to 3.9x as of June 30, 2022.
The Company's leverage ratios increased as a result of the
repurchase of preferred stock and the decline in Agency RMBS
valuations.
Total expenses for the third quarter of 2022 were approximately
$5.9 million compared to $7.1 million in the second quarter of 2022. The
ratio of annualized total expenses to average stockholders'
equity(1) decreased to 2.65% in the third quarter of
2022 from 3.01% in the second quarter of 2022 primarily due to a
reduction in management fees attributable to a lower stockholders'
equity base.
As previously announced on September 28,
2022, the Company declared a common stock dividend of
$0.65 per share on September 26, 2022 that was paid on October 27, 2022 to its stockholders of record as
of October 11, 2022. The Company
declared the following dividends on November
1, 2022: a Series B Preferred Stock dividend of $0.4844 per share payable on December 27, 2022 to its stockholders of record
as of December 5, 2022 and a Series C
Preferred Stock dividend of $0.46875
per share payable on December 27,
2022 to its stockholders of record as of December 5, 2022.
|
(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, November 3, 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 November 18,
2022 by calling:
888-566-0495 (North America) or
1-203-369-3054 (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
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.
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
$ in thousands,
except share amounts
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
other securities
|
49,058
|
|
43,994
|
|
42,657
|
|
134,689
|
|
124,725
|
|
Commercial
loan
|
670
|
|
561
|
|
525
|
|
1,768
|
|
1,621
|
|
Total interest
income
|
49,728
|
|
44,555
|
|
43,182
|
|
136,457
|
|
126,346
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements
(1)
|
18,008
|
|
3,455
|
|
(3,272)
|
|
19,359
|
|
(8,109)
|
|
Total interest
expense
|
18,008
|
|
3,455
|
|
(3,272)
|
|
19,359
|
|
(8,109)
|
|
Net interest
income
|
31,720
|
|
41,100
|
|
46,454
|
|
117,098
|
|
134,455
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(loss)
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
investments, net
|
(260,837)
|
|
(324,876)
|
|
(16,830)
|
|
(1,090,101)
|
|
(276,067)
|
|
(Increase) decrease in
provision for credit losses
|
—
|
|
—
|
|
—
|
|
—
|
|
1,768
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
(6)
|
|
(352)
|
|
344
|
|
(287)
|
|
581
|
|
Gain (loss) on
derivative instruments, net
|
133,549
|
|
181,742
|
|
35,282
|
|
554,151
|
|
135,959
|
|
Other investment income
(loss), net
|
—
|
|
(11)
|
|
1
|
|
44
|
|
1
|
|
Total other income
(loss)
|
(127,294)
|
|
(143,497)
|
|
18,797
|
|
(536,193)
|
|
(137,758)
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Management fee –
related party
|
3,836
|
|
4,619
|
|
5,432
|
|
13,729
|
|
15,771
|
|
General and
administrative
|
2,018
|
|
2,519
|
|
2,139
|
|
6,561
|
|
6,279
|
|
Total
expenses
|
5,854
|
|
7,138
|
|
7,571
|
|
20,290
|
|
22,050
|
|
Net income
(loss)
|
(101,428)
|
|
(109,535)
|
|
57,680
|
|
(439,385)
|
|
(25,353)
|
|
Dividends to preferred
stockholders
|
(5,862)
|
|
(8,100)
|
|
(8,394)
|
|
(22,356)
|
|
(29,401)
|
|
Gain on repurchase and
retirement of preferred stock
|
12,688
|
|
1,491
|
|
—
|
|
14,179
|
|
—
|
|
Issuance and redemption
costs of redeemed preferred stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,682)
|
|
Net income (loss)
attributable to common stockholders
|
(94,602)
|
|
(116,144)
|
|
49,286
|
|
(447,562)
|
|
(59,436)
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
(2.78)
|
|
(3.52)
|
|
1.66
|
|
(13.42)
|
|
(2.28)
|
|
Diluted
|
(2.78)
|
|
(3.52)
|
|
1.66
|
|
(13.42)
|
|
(2.28)
|
|
(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 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 September 30, 2022.
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
|
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
$ in
thousands
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Net income
(loss)
|
(101,428)
|
|
(109,535)
|
|
57,680
|
|
(439,385)
|
|
(25,353)
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
on mortgage-backed securities, net
|
(1,243)
|
|
(1,825)
|
|
(473)
|
|
(5,489)
|
|
1,663
|
|
Reclassification of
amortization of net deferred (gain) loss on de-designated interest
rate swaps to repurchase agreements interest expense
|
(4,855)
|
|
(4,802)
|
|
(5,601)
|
|
(14,853)
|
|
(16,398)
|
|
Currency translation
adjustments on investment in unconsolidated venture
|
(141)
|
|
(93)
|
|
187
|
|
(434)
|
|
164
|
|
Total other
comprehensive income (loss)
|
(6,239)
|
|
(6,720)
|
|
(5,887)
|
|
(20,776)
|
|
(14,571)
|
|
Comprehensive income
(loss)
|
(107,667)
|
|
(116,255)
|
|
51,793
|
|
(460,161)
|
|
(39,924)
|
|
Dividends to preferred
stockholders
|
(5,862)
|
|
(8,100)
|
|
(8,394)
|
|
(22,356)
|
|
(29,401)
|
|
Gain on repurchase and
retirement of preferred stock
|
12,688
|
|
1,491
|
|
—
|
|
14,179
|
|
—
|
|
Issuance and
redemption costs of redeemed preferred stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,682)
|
|
Comprehensive income
(loss) attributable to common stockholders
|
(100,841)
|
|
(122,864)
|
|
43,399
|
|
(468,338)
|
|
(74,007)
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited)
|
|
|
As of
|
|
$ in thousands,
except share amounts
|
September 30,
2022
|
|
December 31,
2021
|
|
ASSETS
|
|
|
|
|
Mortgage-backed
securities, at fair value (including pledged securities of
$4,043,370 and $7,326,175, respectively)
|
4,356,991
|
|
7,804,259
|
|
Cash and cash
equivalents
|
163,590
|
|
357,134
|
|
Restricted
cash
|
100,775
|
|
219,918
|
|
Due from
counterparties
|
4,837
|
|
7,985
|
|
Investment related
receivable
|
19,306
|
|
16,766
|
|
Derivative assets, at
fair value
|
11,227
|
|
270
|
|
Other assets
|
28,979
|
|
37,509
|
|
Total
assets
|
4,685,705
|
|
8,443,841
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Repurchase
agreements
|
3,887,291
|
|
6,987,834
|
|
Derivative liabilities,
at fair value
|
3,695
|
|
14,356
|
|
Dividends
payable
|
22,979
|
|
29,689
|
|
Investment related
payable
|
706
|
|
—
|
|
Accrued interest
payable
|
3,766
|
|
1,171
|
|
Collateral held
payable
|
10
|
|
280
|
|
Accounts payable and
accrued expenses
|
1,839
|
|
1,887
|
|
Due to
affiliate
|
4,210
|
|
6,489
|
|
Total
liabilities
|
3,924,496
|
|
7,041,706
|
|
Commitments and
contingencies (See Note 14) (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: 4,537,634 and 6,200,000 shares issued
and outstanding, respectively ($113,441 and $155,000 aggregate
liquidation preference, respectively)
|
109,679
|
|
149,860
|
|
7.50%
Fixed-to-Floating Series C Cumulative
Redeemable Preferred Stock: 7,816,470 and 11,500,000 shares issued
and outstanding, respectively ($195,412 and $287,500 aggregate
liquidation preference, respectively)
|
189,028
|
|
278,108
|
|
Common Stock, par value
$0.01 per share; 67,000,000 and 450,000,000 shares authorized,
respectively; 35,352,123 and 32,987,478 shares issued and
outstanding, respectively
|
353
|
|
330
|
|
Additional paid in
capital
|
3,858,418
|
|
3,819,375
|
|
Accumulated other
comprehensive income
|
16,510
|
|
37,286
|
|
Retained earnings
(distributions in excess of earnings)
|
(3,412,779)
|
|
(2,882,824)
|
|
Total stockholders'
equity
|
761,209
|
|
1,402,135
|
|
Total liabilities and
stockholders' equity
|
4,685,705
|
|
8,443,841
|
|
(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 September 30, 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 on
repurchase and retirement of preferred stock; (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. The Company added the gain
on repurchase and retirement of preferred stock as a reconciling
item to its earnings available for distribution calculation in the
second quarter of 2022 because the gain does not represent earnings
on its investment portfolio.
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
|
|
Nine Months
Ended
|
|
$ in thousands,
except per share data
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Net income (loss)
attributable to common stockholders
|
(94,602)
|
|
(116,144)
|
|
49,286
|
|
(447,562)
|
|
(59,436)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on
investments, net
|
260,837
|
|
324,876
|
|
16,830
|
|
1,090,101
|
|
276,067
|
|
Realized (gain) loss on
derivative instruments, net (1)
|
(62,877)
|
|
(141,232)
|
|
(38,093)
|
|
(487,538)
|
|
(164,396)
|
|
Unrealized (gain) loss
on derivative instruments, net (1)
|
(40,527)
|
|
(26,944)
|
|
(1,364)
|
|
(21,618)
|
|
15,141
|
|
TBA dollar roll income
(2)
|
2,159
|
|
11,855
|
|
9,316
|
|
27,415
|
|
29,541
|
|
Gain on repurchase and
retirement of preferred stock
|
(12,688)
|
|
(1,491)
|
|
—
|
|
(14,179)
|
|
—
|
|
(Gain) loss on foreign
currency transactions, net (3)
|
—
|
|
11
|
|
(1)
|
|
(44)
|
|
(1)
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate swaps
(4)
|
(4,855)
|
|
(4,802)
|
|
(5,601)
|
|
(14,853)
|
|
(16,398)
|
|
Subtotal
|
142,049
|
|
162,273
|
|
(18,913)
|
|
579,284
|
|
139,954
|
|
Earnings available for
distribution
|
47,447
|
|
46,129
|
|
30,373
|
|
131,722
|
|
80,518
|
|
Basic income (loss) per
common share
|
(2.78)
|
|
(3.52)
|
|
1.66
|
|
(13.42)
|
|
(2.28)
|
|
Earnings available for
distribution per common share (5)
|
1.39
|
|
1.40
|
|
1.02
|
|
3.95
|
|
3.09
|
|
(1)
|
U.S. GAAP gain (loss)
on derivative instruments, net on the condensed consolidated
statements of operations includes the following
components:
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
$ in
thousands
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Realized gain (loss) on
derivative instruments, net
|
62,877
|
|
141,232
|
|
38,093
|
|
487,538
|
|
164,396
|
|
Unrealized gain (loss)
on derivative instruments, net
|
40,527
|
|
26,944
|
|
1,364
|
|
21,618
|
|
(15,141)
|
|
Contractual net
interest income (expense) on interest rate swaps
|
30,145
|
|
13,566
|
|
(4,175)
|
|
44,995
|
|
(13,296)
|
|
Gain (loss) on
derivative instruments, net
|
133,549
|
|
181,742
|
|
35,282
|
|
554,151
|
|
135,959
|
|
(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
|
|
Nine Months
Ended
|
|
$ in
thousands
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Interest expense on
repurchase agreement borrowings
|
22,863
|
|
8,257
|
|
2,329
|
|
34,212
|
|
8,289
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate
swaps
|
(4,855)
|
|
(4,802)
|
|
(5,601)
|
|
(14,853)
|
|
(16,398)
|
|
Repurchase agreements
interest expense
|
18,008
|
|
3,455
|
|
(3,272)
|
|
19,359
|
|
(8,109)
|
|
(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
|
|
Nine Months
Ended
|
|
$ in
thousands
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Effective net interest
income (1)
|
57,010
|
|
49,864
|
|
36,678
|
|
147,240
|
|
104,761
|
|
TBA dollar roll
income
|
2,159
|
|
11,855
|
|
9,316
|
|
27,415
|
|
29,541
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
(6)
|
|
(352)
|
|
344
|
|
(287)
|
|
581
|
|
(Increase) decrease in
provision for credit losses
|
—
|
|
—
|
|
—
|
|
—
|
|
1,768
|
|
Total
expenses
|
(5,854)
|
|
(7,138)
|
|
(7,571)
|
|
(20,290)
|
|
(22,050)
|
|
Subtotal
|
53,309
|
|
54,229
|
|
38,767
|
|
154,078
|
|
114,601
|
|
Dividends to preferred
stockholders
|
(5,862)
|
|
(8,100)
|
|
(8,394)
|
|
(22,356)
|
|
(29,401)
|
|
Issuance and redemption
costs of redeemed preferred stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,682)
|
|
Earnings available for
distribution
|
47,447
|
|
46,129
|
|
30,373
|
|
131,722
|
|
80,518
|
|
(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
|
|
September 30,
2022
|
|
June 30,
2022
|
|
September 30,
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
|
18,008
|
|
1.84 %
|
|
3,455
|
|
0.34 %
|
|
(3,272)
|
|
(0.17 %)
|
|
Add: Amortization of
net deferred gain
(loss) on de-designated
interest
rate swaps
|
4,855
|
|
0.50 %
|
|
4,802
|
|
0.47 %
|
|
5,601
|
|
0.29 %
|
|
Add (less): Contractual
net interest
expense (income) on interest rate
swaps recorded as gain (loss) on
derivative instruments, net
|
(30,145)
|
|
(3.09 %)
|
|
(13,566)
|
|
(1.34 %)
|
|
4,175
|
|
0.21 %
|
|
Effective interest
expense
|
(7,282)
|
|
(0.75 %)
|
|
(5,309)
|
|
(0.53 %)
|
|
6,504
|
|
0.33 %
|
|
Nine Months Ended
September 30,
|
|
2022
|
|
2021
|
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Total interest
expense
|
19,359
|
|
0.55 %
|
|
(8,109)
|
|
(0.13 %)
|
|
Add: Amortization of
net deferred gain (loss) on de-designated
interest rate swaps
|
14,853
|
|
0.42 %
|
|
16,398
|
|
0.27 %
|
|
Add (less): Contractual
net interest expense (income) on interest
rate swaps recorded as gain (loss) on
derivative instruments,
net
|
(44,995)
|
|
(1.27 %)
|
|
13,296
|
|
0.22 %
|
|
Effective interest
expense
|
(10,783)
|
|
(0.30 %)
|
|
21,585
|
|
0.36 %
|
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
|
|
September 30,
2022
|
|
June 30,
2022
|
|
September 30,
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
|
31,720
|
|
2.51 %
|
|
41,100
|
|
3.48 %
|
|
46,454
|
|
2.15 %
|
|
Less: Amortization of
net deferred
(gain) loss on de-designated
interest rate swaps
|
(4,855)
|
|
(0.50 %)
|
|
(4,802)
|
|
(0.47 %)
|
|
(5,601)
|
|
(0.29 %)
|
|
Add (less): Contractual
net interest
income (expense) on interest rate
swaps recorded as gain (loss) on
derivative instruments, net
|
30,145
|
|
3.09 %
|
|
13,566
|
|
1.34 %
|
|
(4,175)
|
|
(0.21 %)
|
|
Effective net interest
income
|
57,010
|
|
5.10 %
|
|
49,864
|
|
4.35 %
|
|
36,678
|
|
1.65 %
|
|
Nine Months Ended
September 30,
|
|
2022
|
|
2021
|
|
$ in
thousands
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Net interest
income
|
117,098
|
|
2.82 %
|
|
134,455
|
|
2.01 %
|
|
Less: Amortization of
net deferred (gain) loss on de-designated
interest rate swaps
|
(14,853)
|
|
(0.42 %)
|
|
(16,398)
|
|
(0.27 %)
|
|
Add (less): Contractual
net interest income (expense) on interest rate
swaps recorded as gain (loss) on
derivative instruments, net
|
44,995
|
|
1.27 %
|
|
(13,296)
|
|
(0.22 %)
|
|
Effective net interest
income
|
147,240
|
|
3.67 %
|
|
104,761
|
|
1.52 %
|
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 September 30, 2022 and June 30, 2022. 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.
|
September 30,
2022
|
|
$ in
thousands
|
Agency
RMBS
|
Credit Portfolio
(1)
|
Total
|
|
Mortgage-backed
securities
|
4,312,131
|
44,860
|
4,356,991
|
|
Cash and cash
equivalents (2)
|
163,590
|
—
|
163,590
|
|
Restricted cash
(3)
|
100,775
|
—
|
100,775
|
|
Derivative assets, at
fair value (3)
|
11,161
|
66
|
11,227
|
|
Other assets
|
25,516
|
27,606
|
53,122
|
|
Total
assets
|
4,613,173
|
72,532
|
4,685,705
|
|
|
|
|
|
Repurchase
agreements
|
3,887,291
|
—
|
3,887,291
|
|
Derivative liabilities,
at fair value (3)
|
3,695
|
—
|
3,695
|
|
Other
liabilities
|
30,754
|
2,756
|
33,510
|
|
Total
liabilities
|
3,921,740
|
2,756
|
3,924,496
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
691,433
|
69,776
|
761,209
|
|
Debt-to-equity ratio
(4)
|
5.6
|
—
|
5.1
|
|
Economic debt-to-equity
ratio (5)
|
5.8
|
—
|
5.3
|
|
(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 ($142.8 million as of September 30,
2022) to total stockholders' equity.
|
|
June 30,
2022
|
|
$ in
thousands
|
Agency
RMBS
|
Credit Portfolio
(1)
|
Total
|
|
Mortgage-backed
securities
|
3,863,260
|
51,905
|
3,915,165
|
|
Cash and cash
equivalents (2)
|
202,182
|
—
|
202,182
|
|
Restricted cash
(3)
|
128,604
|
—
|
128,604
|
|
Derivative assets, at
fair value (3)
|
4,236
|
53
|
4,289
|
|
Other assets
|
25,462
|
28,729
|
54,191
|
|
Total
assets
|
4,223,744
|
80,687
|
4,304,431
|
|
|
|
|
|
Repurchase
agreements
|
3,262,530
|
—
|
3,262,530
|
|
Derivative liabilities,
at fair value (3)
|
37,284
|
—
|
37,284
|
|
Other
liabilities
|
42,101
|
3,053
|
45,154
|
|
Total
liabilities
|
3,341,915
|
3,053
|
3,344,968
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
881,829
|
77,634
|
959,463
|
|
Debt-to-equity ratio
(4)
|
3.7
|
—
|
3.4
|
|
Economic debt-to-equity
ratio (5)
|
4.2
|
—
|
3.9
|
|
(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 ($466.6 million as of June 30,
2022) to total stockholders' equity.
|
Average Balances
The table below presents information related to the Company's
average earning assets, average earning asset yields, average
borrowings and average cost of funds for the following periods:
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
$ in
thousands
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Average earning assets
(1)
|
4,568,855
|
|
4,663,313
|
|
8,713,515
|
|
5,403,538
|
|
8,955,315
|
|
Average earning asset
yields (2)
|
4.35 %
|
|
3.82 %
|
|
1.98 %
|
|
3.37 %
|
|
1.88 %
|
|
|
|
|
|
|
|
|
|
|
|
Average borrowings
(3)
|
3,907,724
|
|
4,059,423
|
|
7,846,240
|
|
4,720,478
|
|
8,044,655
|
|
Average cost of funds
(4)
|
1.84 %
|
|
0.34 %
|
|
(0.17 %)
|
|
0.55 %
|
|
(0.13 %)
|
|
(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.
|
Matt Seitz,
Investor
Relations
404-439-3323
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SOURCE Invesco Mortgage Capital Inc.