ATLANTA, Aug. 7, 2018 /PRNewswire/ -- Invesco
Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced
financial results for the quarter ended June 30, 2018.
Financial Summary:
- Q2 2018 net income attributable to common stockholders of
$80.0 million or $0.72 basic earnings per common share ("EPS")
compared to $41.5 million or
$0.37 basic EPS in Q1 2018
- Q2 2018 core earnings* of $46.1
million or core EPS of $0.41
compared to $50.4 million or core EPS
of $0.45 in Q1 2018
- Q2 2018 book value per diluted common share** of $17.06 compared to $17.16 at Q1 2018
- Economic return*** of 1.9% for the quarter, (2.5%) year to
date
- Q2 2018 debt-to-equity ratio of 6.1x compared to 6.2x at Q1
2018
- Q2 2018 common stock dividend maintained at $0.42 per share
"We are pleased to announce core earnings of $0.41 per share for the second quarter, an
economic return of 1.9% for the quarter, and continued book value
stability. Despite the rise in interest rates, a flattening yield
curve and further Federal Reserve balance sheet reduction in the
quarter, we continued to benefit from our diversified investment
strategy. Credit spreads have remained in a relatively narrow range
in the current market environment, even as Agency RMBS spreads
weakened. While our decline in core earnings was substantially
attributable to a higher cost of funds, our disciplined approach to
actively maintaining our equity duration target helped mitigate the
pressure from headwinds during the second quarter," said
John Anzalone, Chief Executive
Officer. "We remain confident about our ability to capture
attractive returns in Agency RMBS and CMBS."
*
|
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
diluted common share is calculated as total equity less the
liquidation preference of our 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 plus Operating Partnership Units convertible into
shares of common stock (1,425,000 shares).
|
***
|
Economic return for
the quarter ended June 30, 2018 is defined as the change in
book value per diluted common share from March 31, 2018 to
June 30, 2018 of ($0.10); plus dividends declared of $0.42 per
common share; divided by the March 31, 2018 book value per diluted
common share of $17.16. Economic return for the six months ended
June 30, 2018 is defined as the change in book value per
diluted common share from December 31, 2017 to June 30, 2018 of
($1.29); plus dividends declared of $0.84 per common share; divided
by the December 31, 2017 book value per diluted common share of
$18.35.
|
Key performance indicators for the quarters ended June 30,
2018 and March 31, 2018 are
summarized in the table below.
($ in millions,
except share amounts)
|
Q2 '18
|
Q1 '18
|
Variance
|
Average
Balances
|
(unaudited)
|
(unaudited)
|
|
Average earning
assets (at amortized costs)
|
$17,731.5
|
|
$18,131.0
|
|
-$399.5
|
|
Average
borrowings
|
$15,276.0
|
|
$15,652.3
|
|
-$376.3
|
|
Average
equity
|
$2,093.4
|
|
$2,119.0
|
|
-$25.6
|
|
|
|
|
|
U.S. GAAP
Financial Measures
|
|
|
|
Total interest
income
|
$151.6
|
|
$153.2
|
|
-$1.6
|
|
Total interest
expense
|
$77.9
|
|
$68.1
|
|
$9.8
|
|
Net interest
income
|
$73.7
|
|
$85.1
|
|
-$11.4
|
|
Total
expenses
|
$11.6
|
|
$12.0
|
|
-$0.4
|
|
Net income (loss)
attributable to common stockholders
|
$80.0
|
|
$41.5
|
|
$38.5
|
|
|
|
|
|
Average earning asset
yields
|
3.42
|
%
|
3.38
|
%
|
0.04
|
%
|
Cost of
funds
|
2.04
|
%
|
1.74
|
%
|
0.30
|
%
|
Net interest rate
margin
|
1.38
|
%
|
1.64
|
%
|
-0.26
|
%
|
|
|
|
|
Book value per
diluted common share*
|
$17.06
|
|
$17.16
|
|
-$0.10
|
|
Earnings (loss) per
common share (basic)
|
$0.72
|
|
$0.37
|
|
$0.35
|
|
Earnings (loss) per
common share (diluted)
|
$0.72
|
|
$0.37
|
|
$0.35
|
|
Debt-to-equity
ratio
|
6.1
|
x
|
6.2
|
x
|
-0.1
|
x
|
Comprehensive income
(loss) attributable to common stockholders per common share
(basic)
|
$0.32
|
|
($0.77)
|
|
$1.09
|
|
|
|
|
|
Non-GAAP Financial
Measures**
|
|
|
|
Core
earnings
|
$46.1
|
|
$50.4
|
|
-$4.3
|
|
Effective interest
income
|
$157.2
|
|
$158.9
|
|
-$1.7
|
|
Effective interest
expense
|
$89.3
|
|
$86.8
|
|
$2.5
|
|
Effective net
interest income
|
$68.0
|
|
$72.1
|
|
-$4.1
|
|
|
|
|
|
Effective
yield
|
3.55
|
%
|
3.50
|
%
|
0.05
|
%
|
Effective cost of
funds
|
2.34
|
%
|
2.22
|
%
|
0.12
|
%
|
Effective interest
rate margin
|
1.21
|
%
|
1.28
|
%
|
-0.07
|
%
|
|
|
|
|
Core earnings per
common share
|
$0.41
|
|
$0.45
|
|
-$0.04
|
|
Repurchase agreement
debt-to-equity ratio
|
6.5
|
x
|
6.8
|
x
|
-0.3
|
x
|
|
|
*
|
Book value per
diluted common share is calculated as total equity less the
liquidation preference of our 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 plus Operating Partnership Units convertible into
shares of common stock (1,425,000 shares).
|
**
|
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 repurchase agreement 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
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 income attributable to common stockholders for the second
quarter of 2018 was $80.0 million
compared to $41.5 million for the
first quarter of 2018. Higher net income attributable to
common stockholders was primarily driven by a $124.0 million decrease in losses on investments
that was partially offset by a $66.2
million decrease in gains on derivative instruments.
Losses on investments primarily consist of unrealized losses on the
Company's mortgage-backed securities accounted for under the fair
value option. Net income attributable to common stockholders
was also impacted by an $11.4 million
decrease in net interest income. Book value per diluted common
share for the second quarter of 2018 decreased by 0.6% to
$17.06.
During the second quarter of 2018, the Company generated
$46.1 million in core earnings, a
decrease of $4.3 million or 8.5% from
the first quarter of 2018. Core earnings decreased in the
second quarter primarily due to a $2.5
million increase in effective interest expense and a
$1.7 million decrease in effective
interest income. Effective interest expense rose due to a 12
basis point increase in effective cost of funds reflecting
increases in the federal funds rate since December 2017.
Effective interest expense includes contractual interest expense on
interest rate swaps and excludes amortization of net deferred gains
on designated interest rate swaps. Lower effective interest
income was driven by a slight decrease in average earning
assets to $17.7 billion from
$18.1 billion during the first
quarter following repayment of the Company's exchangeable senior
notes in March 2018.
Total interest income for the second quarter of 2018 was
$151.6 million compared to
$153.2 million for the first quarter
of 2018. Lower total interest income reflects a $0.4 billion decrease in average earnings assets
that was partially offset by a 4 basis point increase in average
earning asset yields from 3.38% to 3.42%. Average earning
asset yields benefited from higher index rates on floating and
adjustable rate non-Agency RMBS and GSE CRT securities and
commercial loans.
The Company decreased its average borrowings by $0.4 billion (2.4%) in the second quarter of 2018
to $15.3 billion compared to average
borrowings of $15.7 billion in the
first quarter. Total interest expense was $77.9 million compared to total interest expense
of $68.1 million during the first
quarter of 2018. Total interest expense rose during the
second quarter due to a 30 basis point increase in cost of funds to
2.04% from 1.74% in the first quarter.
The Company's debt-to-equity ratio decreased to 6.1x as of
June 30, 2018 from 6.2x as of March 31,
2018 and its repurchase agreement debt-to-equity ratio
decreased to 6.5x as of June 30, 2018 from 6.8x as of
March 31, 2018.
Total expenses include management fees and general and
administrative expenses primarily consisting of directors and
officers insurance, legal costs, accounting, auditing and tax
services and miscellaneous general and administrative costs.
Total expenses for the second quarter of 2018 were approximately
$11.6 million compared to
$12.0 million for the first quarter
of 2018. The ratio of annualized total expenses to average
equity (1) decreased to 2.22% compared to 2.26% for the
first quarter due to lower total expenses.
As previously announced, the Company declared the following
dividends on June 15, 2018: a common stock dividend of
$0.42 per share paid on July 26,
2018 and a Series A preferred stock dividend of $0.4844 per share paid on July 25,
2018. The Company declared the following dividends on its
Series B and Series C Preferred Stock on August 2, 2018 to its stockholders of record as
of September 5, 2018: a Series B
Preferred Stock dividend of $0.4844
per share payable on September 27,
2018 and a Series C Preferred Stock dividend of $0.46875 per share payable on September 27, 2018.
(1)
|
The ratio of
annualized total expenses to average equity is calculated as the
annualized sum of management fees plus general and administrative
expenses divided by average equity. Average equity is calculated
based on the weighted month-end balance of total equity excluding
equity attributable to preferred stockholders.
|
About Invesco Mortgage Capital Inc.
Invesco Mortgage Capital Inc. is a real estate investment trust
that primarily focuses on investing in, financing and managing
residential and commercial mortgage-backed securities and mortgage
loans. Invesco Mortgage Capital Inc. is externally managed and
advised by Invesco Advisers, Inc., a 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
Wednesday, August 8, 2018, 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 August 22,
2018 by calling:
800-819-5739 (North America) or
1-203-369-3350 (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
market for our target assets, our financial performance, including
our core earnings, economic return, comprehensive income and
changes in our book value, 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
|
|
Six Months
Ended
|
$ in thousands,
except share amounts
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
credit risk transfer securities (1)
|
147,548
|
|
|
149,003
|
|
|
121,027
|
|
|
296,551
|
|
|
239,900
|
|
Commercial
loans
|
4,051
|
|
|
4,222
|
|
|
6,021
|
|
|
8,273
|
|
|
11,785
|
|
Total interest
income
|
151,599
|
|
|
153,225
|
|
|
127,048
|
|
|
304,824
|
|
|
251,685
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
69,389
|
|
|
59,585
|
|
|
36,072
|
|
|
128,974
|
|
|
66,019
|
|
Secured
loans
|
8,471
|
|
|
6,927
|
|
|
4,535
|
|
|
15,398
|
|
|
7,948
|
|
Exchangeable senior
notes
|
—
|
|
|
1,621
|
|
|
3,504
|
|
|
1,621
|
|
|
8,512
|
|
Total interest
expense
|
77,860
|
|
|
68,133
|
|
|
44,111
|
|
|
145,993
|
|
|
82,479
|
|
Net interest
income
|
73,739
|
|
|
85,092
|
|
|
82,937
|
|
|
158,831
|
|
|
169,206
|
|
Other Income
(loss)
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
investments, net
|
(36,377)
|
|
|
(160,370)
|
|
|
11,175
|
|
|
(196,747)
|
|
|
9,322
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
798
|
|
|
896
|
|
|
(154)
|
|
|
1,694
|
|
|
(1,688)
|
|
Gain (loss) on
derivative instruments, net
|
67,169
|
|
|
133,367
|
|
|
(53,513)
|
|
|
200,536
|
|
|
(48,051)
|
|
Realized and
unrealized credit derivative income (loss), net
|
735
|
|
|
3,165
|
|
|
21,403
|
|
|
3,900
|
|
|
41,358
|
|
Net loss on
extinguishment of debt
|
—
|
|
|
(26)
|
|
|
(526)
|
|
|
(26)
|
|
|
(5,237)
|
|
Other investment
income (loss), net
|
(2,160)
|
|
|
3,102
|
|
|
2,533
|
|
|
942
|
|
|
3,862
|
|
Total other income
(loss)
|
30,165
|
|
|
(19,866)
|
|
|
(19,082)
|
|
|
10,299
|
|
|
(434)
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Management fee –
related party
|
10,102
|
|
|
10,221
|
|
|
9,027
|
|
|
20,323
|
|
|
17,828
|
|
General and
administrative
|
1,525
|
|
|
1,756
|
|
|
1,608
|
|
|
3,281
|
|
|
3,692
|
|
Total
expenses
|
11,627
|
|
|
11,977
|
|
|
10,635
|
|
|
23,604
|
|
|
21,520
|
|
Net income
|
92,277
|
|
|
53,249
|
|
|
53,220
|
|
|
145,526
|
|
|
147,252
|
|
Net income
attributable to non-controlling interest
|
1,163
|
|
|
671
|
|
|
670
|
|
|
1,834
|
|
|
1,856
|
|
Net income
attributable to Invesco Mortgage Capital Inc.
|
91,114
|
|
|
52,578
|
|
|
52,550
|
|
|
143,692
|
|
|
145,396
|
|
Dividends to
preferred stockholders
|
11,106
|
|
|
11,107
|
|
|
5,716
|
|
|
22,213
|
|
|
11,432
|
|
Net income
attributable to common stockholders
|
80,008
|
|
|
41,471
|
|
|
46,834
|
|
|
121,479
|
|
|
133,964
|
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
Basic
|
0.72
|
|
|
0.37
|
|
|
0.42
|
|
|
1.09
|
|
|
1.20
|
|
Diluted
|
0.72
|
|
|
0.37
|
|
|
0.41
|
|
|
1.08
|
|
|
1.15
|
|
Dividends declared
per common share
|
0.42
|
|
|
0.42
|
|
|
0.40
|
|
|
0.84
|
|
|
0.80
|
|
|
|
(1)
|
The table below shows
the components of mortgage-backed and credit risk transfer
securities income for the periods presented.
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Coupon
interest
|
164,165
|
|
|
166,319
|
|
|
147,267
|
|
|
330,484
|
|
|
293,336
|
|
Net premium
amortization
|
(16,617)
|
|
|
(17,316)
|
|
|
(26,240)
|
|
|
(33,933)
|
|
|
(53,436)
|
|
Mortgage-backed and
credit risk transfer securities interest income
|
147,548
|
|
|
149,003
|
|
|
121,027
|
|
|
296,551
|
|
|
239,900
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
|
(Unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
In
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Net income
|
92,277
|
|
|
53,249
|
|
|
53,220
|
|
|
145,526
|
|
|
147,252
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on mortgage-backed and credit risk transfer securities,
net
|
(47,929)
|
|
|
(132,317)
|
|
|
39,633
|
|
|
(180,246)
|
|
|
55,922
|
|
Reclassification of
unrealized (gain) loss on sale of mortgage-backed and credit risk
transfer securities to gain (loss) on investments, net
|
9,889
|
|
|
9,237
|
|
|
651
|
|
|
19,126
|
|
|
1,501
|
|
Reclassification of
amortization of net deferred (gain) loss on de-designated interest
rate swaps to repurchase agreements interest expense
|
(6,898)
|
|
|
(6,539)
|
|
|
(6,369)
|
|
|
(13,437)
|
|
|
(12,667)
|
|
Currency translation
adjustments on investment in unconsolidated venture
|
486
|
|
|
312
|
|
|
139
|
|
|
798
|
|
|
(476)
|
|
Total other
comprehensive income (loss)
|
(44,452)
|
|
|
(129,307)
|
|
|
34,054
|
|
|
(173,759)
|
|
|
44,280
|
|
Comprehensive income
(loss)
|
47,825
|
|
|
(76,058)
|
|
|
87,274
|
|
|
(28,233)
|
|
|
191,532
|
|
Less: Comprehensive
(income) loss attributable to non-controlling interest
|
(602)
|
|
|
959
|
|
|
(1,099)
|
|
|
357
|
|
|
(2,414)
|
|
Less: Dividends to
preferred stockholders
|
(11,106)
|
|
|
(11,107)
|
|
|
(5,716)
|
|
|
(22,213)
|
|
|
(11,432)
|
|
Comprehensive income
(loss) attributable to common stockholders
|
36,117
|
|
|
(86,206)
|
|
|
80,459
|
|
|
(50,089)
|
|
|
177,686
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|
|
As
of
|
$ in
thousands except share amounts
|
June 30,
2018
|
|
December 31,
2017
|
ASSETS
|
|
Mortgage-backed and
credit risk transfer securities, at fair value (including pledged
securities of $17,047,937 and $17,560,811, respectively)
|
17,583,187
|
|
|
18,190,754
|
|
Commercial loans,
held-for-investment
|
127,607
|
|
|
191,808
|
|
Cash and cash
equivalents
|
70,254
|
|
|
88,381
|
|
Restricted
cash
|
—
|
|
|
620
|
|
Due from
counterparties
|
7,255
|
|
|
—
|
|
Investment related
receivable
|
70,839
|
|
|
73,217
|
|
Derivative assets, at
fair value
|
47,509
|
|
|
6,896
|
|
Other
assets
|
108,124
|
|
|
105,580
|
|
Total
assets
|
18,014,775
|
|
|
18,657,256
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Repurchase
agreements
|
13,702,321
|
|
|
14,080,801
|
|
Secured
loans
|
1,650,000
|
|
|
1,650,000
|
|
Exchangeable senior
notes, net
|
—
|
|
|
143,231
|
|
Derivative
liabilities, at fair value
|
6,071
|
|
|
32,765
|
|
Dividends and
distributions payable
|
50,201
|
|
|
50,193
|
|
Investment related
payable
|
23,562
|
|
|
5,191
|
|
Accrued interest
payable
|
18,886
|
|
|
17,845
|
|
Collateral held
payable
|
39,748
|
|
|
7,327
|
|
Accounts payable and
accrued expenses
|
1,705
|
|
|
2,200
|
|
Due to
affiliate
|
10,558
|
|
|
10,825
|
|
Total
liabilities
|
15,503,052
|
|
|
16,000,378
|
|
Commitments and
contingencies (See Note 16) (1):
|
|
|
|
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; 111,643,188
and 111,624,159 shares issued and outstanding,
respectively
|
1,116
|
|
|
1,116
|
|
Additional paid in
capital
|
2,384,902
|
|
|
2,384,356
|
|
Accumulated other
comprehensive income
|
89,461
|
|
|
261,029
|
|
Retained earnings
(distributions in excess of earnings)
|
(551,632)
|
|
|
(579,334)
|
|
Total stockholders'
equity
|
2,487,171
|
|
|
2,630,491
|
|
Non-controlling
interest
|
24,552
|
|
|
26,387
|
|
Total
equity
|
2,511,723
|
|
|
2,656,878
|
|
Total liabilities and
equity
|
18,014,775
|
|
|
18,657,256
|
|
|
|
(1)
|
See Note 16 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 June 30, 2018.
|
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
- repurchase agreement 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 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; realized and unrealized (gain) loss on GSE CRT embedded
derivatives, net; (gain) loss on foreign currency transactions,
net; amortization of net deferred (gain) loss on de-designated
interest rate swaps; net loss on extinguishment of debt; and
cumulative adjustments attributable to non-controlling interest.
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, the
majority 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 sheet. 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 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
|
|
Six Months
Ended
|
$ in thousands,
except per share data
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Net income
attributable to common stockholders
|
80,008
|
|
|
41,471
|
|
|
46,834
|
|
|
121,479
|
|
|
133,964
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
(Gain) loss on
investments, net
|
36,377
|
|
|
160,370
|
|
|
(11,175)
|
|
|
196,747
|
|
|
(9,322)
|
|
Realized (gain) loss
on derivative instruments, net (1)
|
(36,274)
|
|
|
(113,578)
|
|
|
40,229
|
|
|
(149,852)
|
|
|
25,311
|
|
Unrealized (gain)
loss on derivative instruments, net (1)
|
(35,406)
|
|
|
(31,901)
|
|
|
(6,682)
|
|
|
(67,307)
|
|
|
(20,120)
|
|
Realized and
unrealized (gain) loss on GSE CRT embedded derivatives, net
(2)
|
4,903
|
|
|
2,468
|
|
|
(15,559)
|
|
|
7,371
|
|
|
(29,707)
|
|
(Gain) loss on
foreign currency transactions, net (3)
|
2,966
|
|
|
(1,814)
|
|
|
(1,731)
|
|
|
1,152
|
|
|
(2,244)
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate swaps
(4)
|
(6,898)
|
|
|
(6,539)
|
|
|
(6,369)
|
|
|
(13,437)
|
|
|
(12,667)
|
|
Net loss on
extinguishment of debt
|
—
|
|
|
26
|
|
|
526
|
|
|
26
|
|
|
5,237
|
|
Subtotal
|
(34,332)
|
|
|
9,032
|
|
|
(761)
|
|
|
(25,300)
|
|
|
(43,512)
|
|
Cumulative
adjustments attributable to non-controlling interest
|
432
|
|
|
(114)
|
|
|
10
|
|
|
318
|
|
|
549
|
|
Core earnings
attributable to common stockholders
|
46,108
|
|
|
50,389
|
|
|
46,083
|
|
|
96,497
|
|
|
91,001
|
|
Basic income (loss)
per common share
|
0.72
|
|
|
0.37
|
|
|
0.42
|
|
|
1.09
|
|
|
1.20
|
|
Core earnings per
share attributable to common stockholders (5)
|
0.41
|
|
|
0.45
|
|
|
0.41
|
|
|
0.86
|
|
|
0.82
|
|
|
|
(1)
|
U.S. GAAP gain
(loss) on derivative instruments, net on the condensed consolidated
statements of operations includes the following
components:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Realized gain (loss)
on derivative instruments, net
|
36,274
|
|
|
113,578
|
|
|
(40,229)
|
|
|
149,852
|
|
|
(25,311)
|
|
Unrealized gain
(loss) on derivative instruments, net
|
35,406
|
|
|
31,901
|
|
|
6,682
|
|
|
67,307
|
|
|
20,120
|
|
Contractual net
interest expense on interest rate swaps
|
(4,511)
|
|
|
(12,112)
|
|
|
(19,966)
|
|
|
(16,623)
|
|
|
(42,860)
|
|
Gain (loss) on
derivative instruments, net
|
67,169
|
|
|
133,367
|
|
|
(53,513)
|
|
|
200,536
|
|
|
(48,051)
|
|
|
|
(2)
|
U.S. GAAP realized
and unrealized credit derivative income (loss), net on the
condensed consolidated statements of operations includes the
following components:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Realized and
unrealized gain (loss) on GSE CRT embedded derivatives,
net
|
(4,903)
|
|
|
(2,468)
|
|
|
15,559
|
|
|
(7,371)
|
|
|
29,707
|
|
GSE CRT embedded
derivative coupon interest
|
5,638
|
|
|
5,633
|
|
|
5,844
|
|
|
11,271
|
|
|
11,651
|
|
Realized and
unrealized credit derivative income (loss), net
|
735
|
|
|
3,165
|
|
|
21,403
|
|
|
3,900
|
|
|
41,358
|
|
|
|
(3)
|
U.S. GAAP other
investment income (loss), net on the condensed consolidated
statements of operations includes the following
components:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Dividend
income
|
807
|
|
|
1,288
|
|
|
802
|
|
|
2,094
|
|
|
1,618
|
|
Gain (loss) on
foreign currency transactions, net
|
(2,966)
|
|
|
1,814
|
|
|
1,731
|
|
|
(1,152)
|
|
|
2,244
|
|
Other investment
income (loss), net
|
(2,159)
|
|
|
3,102
|
|
|
2,533
|
|
|
942
|
|
|
3,862
|
|
|
|
(4)
|
U.S. GAAP repurchase
agreements interest expense on the condensed consolidated
statements of operations includes the following
components:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Interest expense on
repurchase agreement borrowings
|
76,287
|
|
|
66,124
|
|
|
42,441
|
|
|
142,411
|
|
|
78,686
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate
swaps
|
(6,898)
|
|
|
(6,539)
|
|
|
(6,369)
|
|
|
(13,437)
|
|
|
(12,667)
|
|
Repurchase agreements
interest expense
|
69,389
|
|
|
59,585
|
|
|
36,072
|
|
|
128,974
|
|
|
66,019
|
|
|
|
(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.
|
Effective Interest Income/ Effective Yield/ Effective
Interest Expense/Effective Cost of Funds/Effective Net Interest
Income/Effective Interest Rate Margin
The Company calculates effective interest income (and by
calculation, effective yield) as U.S. GAAP total interest income
adjusted for GSE CRT embedded derivative coupon interest that is
recorded as realized and unrealized credit derivative income
(loss), net. The Company includes its GSE CRT embedded
derivative coupon interest in effective interest income because GSE
CRT coupon interest is not accounted for consistently under U.S.
GAAP. The Company accounts for GSE CRTs purchased prior to
August 24, 2015 as hybrid financial
instruments, but has 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 is recorded as interest income,
whereas coupon interest on GSE CRTs accounted for as hybrid
financial instruments is recorded as realized and unrealized credit
derivative income (loss). The Company adds back GSE CRT embedded
derivative coupon interest to its total interest income because the
Company considers GSE CRT embedded derivative coupon interest a
current component of its total interest income irrespective of
whether the Company has elected the fair value option for the GSE
CRT or accounted for the GSE CRT as a hybrid financial
instrument.
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 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 expense on
its interest rate swaps that is recorded as gain (loss) on
derivative instruments, 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 is 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, provide 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
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
Total interest
income
|
151,599
|
|
|
3.42
|
%
|
|
153,225
|
|
|
3.38
|
%
|
|
127,048
|
|
|
3.17
|
%
|
Add: GSE CRT embedded
derivative
coupon interest recorded as
realized and unrealized credit
derivative income (loss), net
|
5,638
|
|
|
0.13
|
%
|
|
5,633
|
|
|
0.12
|
%
|
|
5,844
|
|
|
0.15
|
%
|
Effective interest
income
|
157,237
|
|
|
3.55
|
%
|
|
158,858
|
|
|
3.50
|
%
|
|
132,892
|
|
|
3.32
|
%
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
Total interest
income
|
304,824
|
|
|
3.40
|
%
|
|
251,685
|
|
|
3.11
|
%
|
Add: GSE CRT embedded
derivative coupon interest
recorded as realized and unrealized credit
derivative
income (loss), net
|
11,270
|
|
|
0.13
|
%
|
|
11,651
|
|
|
0.15
|
%
|
Effective interest
income
|
316,094
|
|
|
3.53
|
%
|
|
263,336
|
|
|
3.26
|
%
|
The following tables reconcile total interest expense to
effective interest expense and cost of funds to effective cost of
funds for the following periods:
|
Three Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
$ 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
|
77,860
|
|
|
2.04
|
%
|
|
68,133
|
|
|
1.74
|
%
|
|
44,111
|
|
|
1.26
|
%
|
Add (Less):
Amortization of net
deferred gain (loss) on de-
designated interest rate swaps
|
6,898
|
|
|
0.18
|
%
|
|
6,539
|
|
|
0.17
|
%
|
|
6,369
|
|
|
0.18
|
%
|
Add: Contractual net
interest expense
on interest rate swaps recorded
as gain (loss) on derivative
instruments, net
|
4,511
|
|
|
0.12
|
%
|
|
12,112
|
|
|
0.31
|
%
|
|
19,966
|
|
|
0.57
|
%
|
Effective interest
expense
|
89,269
|
|
|
2.34
|
%
|
|
86,784
|
|
|
2.22
|
%
|
|
70,446
|
|
|
2.01
|
%
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds
/ Effective
Cost of Funds
|
|
Reconciliation
|
|
Cost of Funds
/ Effective
Cost of Funds
|
Total interest
expense
|
145,993
|
|
|
1.89
|
%
|
|
82,479
|
|
|
1.17
|
%
|
Add (Less):
Amortization of net deferred gain (loss) on de-
designated interest rate swaps
|
13,437
|
|
|
0.17
|
%
|
|
12,667
|
|
|
0.18
|
%
|
Add: Contractual net
interest expense on interest rate swaps
recorded as gain (loss) on derivative instruments,
net
|
16,624
|
|
|
0.22
|
%
|
|
42,860
|
|
|
0.61
|
%
|
Effective interest
expense
|
176,054
|
|
|
2.28
|
%
|
|
138,006
|
|
|
1.96
|
%
|
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
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
$ 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
|
73,739
|
|
|
1.38
|
%
|
|
85,092
|
|
|
1.64
|
%
|
|
82,937
|
|
|
1.91
|
%
|
Add (Less):
Amortization of net
deferred (gain) loss on de-
designated interest rate swaps
|
(6,898)
|
|
|
(0.18)%
|
|
|
(6,539)
|
|
|
(0.17)%
|
|
|
(6,369)
|
|
|
(0.18)%
|
|
Add: GSE CRT embedded
derivative
coupon interest recorded as
realized and unrealized credit
derivative income (loss), net
|
5,638
|
|
|
0.13
|
%
|
|
5,633
|
|
|
0.12
|
%
|
|
5,844
|
|
|
0.15
|
%
|
Less: Contractual net
interest expense
on interest rate swaps recorded
as gain (loss) on derivative
instruments, net
|
(4,511)
|
|
|
(0.12)%
|
|
|
(12,112)
|
|
|
(0.31)%
|
|
|
(19,966)
|
|
|
(0.57)%
|
|
Effective net
interest income
|
67,968
|
|
|
1.21
|
%
|
|
72,074
|
|
|
1.28
|
%
|
|
62,446
|
|
|
1.31
|
%
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
$ in
thousands
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
|
Reconciliation
|
|
Net Interest
Rate Margin /
Effective
Interest Rate
Margin
|
Net interest
income
|
158,831
|
|
|
1.51
|
%
|
|
169,206
|
|
|
1.94
|
%
|
Add (Less):
Amortization of net deferred (gain) loss on de-
designated interest rate swaps
|
(13,437)
|
|
|
(0.17)%
|
|
|
(12,667)
|
|
|
(0.18)%
|
|
Add: GSE CRT embedded
derivative coupon interest recorded
as realized and unrealized credit derivative
income
(loss), net
|
11,270
|
|
|
0.13
|
%
|
|
11,651
|
|
|
0.15
|
%
|
Less: Contractual net
interest expense on interest rate swaps
recorded as gain (loss) on derivative instruments,
net
|
(16,623)
|
|
|
(0.22)%
|
|
|
(42,860)
|
|
|
(0.61)%
|
|
Effective net
interest income
|
140,041
|
|
|
1.25
|
%
|
|
125,330
|
|
|
1.30
|
%
|
Repurchase Agreement Debt-to-Equity Ratio
The following tables show the allocation of the Company's equity
to its target assets, the Company's debt-to-equity ratio, and the
Company's repurchase agreement debt-to-equity ratio as of
June 30, 2018 and March 31, 2018. The Company's
debt-to-equity ratio is calculated in accordance with U.S. GAAP and
is the ratio of total debt (sum of repurchase agreements and
secured loans and exchangeable senior notes) to total equity.
The Company presents a repurchase agreement debt-to-equity ratio, a
non-GAAP financial measure of leverage, because the mortgage REIT
industry primarily uses repurchase agreements, which typically
mature within one year, to finance investments. The Company
believes presenting the Company's repurchase agreement
debt-to-equity ratio, when considered together with U.S. GAAP
financial measure of debt-to-equity ratio, provides information
that is useful to investors in understanding the Company's
refinancing risks, and gives investors a comparable statistic to
those other mortgage REITs who almost exclusively borrow using
short-term repurchase agreements that are subject to refinancing
risk.
June 30, 2018
$ in
thousands
|
Agency
RMBS and
CMBS
|
Commercial Credit
(1)
|
Residential Credit
(2)
|
Total
|
Investments
|
12,361,217
|
|
3,307,841
|
|
2,070,733
|
|
17,739,791
|
|
Cash and cash
equivalents (3)
|
33,312
|
|
23,077
|
|
13,865
|
|
70,254
|
|
Derivative assets, at
fair value (4)
|
44,122
|
|
3,387
|
|
—
|
|
47,509
|
|
Other
assets
|
86,210
|
|
64,389
|
|
6,622
|
|
157,221
|
|
Total
assets
|
12,524,861
|
|
3,398,694
|
|
2,091,220
|
|
18,014,775
|
|
|
|
|
|
|
Repurchase
agreements
|
10,671,351
|
|
1,450,627
|
|
1,580,343
|
|
13,702,321
|
|
Secured loans
(5)
|
555,099
|
|
1,094,901
|
|
—
|
|
1,650,000
|
|
Derivative
liabilities, at fair value (4)
|
6,071
|
|
—
|
|
—
|
|
6,071
|
|
Other
liabilities
|
94,556
|
|
29,017
|
|
21,037
|
|
144,610
|
|
Total
liabilities
|
11,327,077
|
|
2,574,545
|
|
1,601,380
|
|
15,503,002
|
|
|
|
|
|
|
Total equity
(allocated)
|
1,197,784
|
|
824,149
|
|
489,840
|
|
2,511,773
|
|
Adjustments to
calculate repurchase agreement debt-to-equity ratio:
|
|
|
|
|
Net equity in
unsecured assets (6)
|
—
|
|
(157,905)
|
|
—
|
|
(157,905)
|
|
Collateral pledged
against secured loans
|
(642,808)
|
|
(1,267,901)
|
|
—
|
|
(1,910,709)
|
|
Secured
loans
|
555,099
|
|
1,094,901
|
|
—
|
|
1,650,000
|
|
Equity related to
repurchase agreement debt
|
1,110,075
|
|
493,244
|
|
489,840
|
|
2,093,159
|
|
Debt-to-equity ratio
(7)
|
9.4
|
|
3.1
|
|
3.2
|
|
6.1
|
|
Repurchase agreement
debt-to-equity ratio (8)
|
9.6
|
|
2.9
|
|
3.2
|
|
6.5
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, commercial loans and investments in unconsolidated
joint ventures are included in commercial credit.
|
(2)
|
Investments in
non-Agency RMBS and GSE CRT are included in residential
credit.
|
(3)
|
Cash and cash
equivalents is allocated based on a percentage of equity for each
asset class.
|
(4)
|
Derivative assets and
liabilities are allocated based on the hedging strategy for each
asset class.
|
(5)
|
Secured loans are
allocated based on amount of collateral pledged.
|
(6)
|
Net equity in
unsecured assets includes commercial loans, investments in
unconsolidated joint ventures and other.
|
(7)
|
Debt-to-equity ratio
is calculated as the ratio of total debt (sum of repurchase
agreements and secured loans) to total equity.
|
(8)
|
Repurchase agreement
debt-to-equity ratio is calculated as the ratio of repurchase
agreements to equity related to repurchase agreement
debt.
|
March 31, 2018
$ in
thousands
|
Agency
RMBS
|
Commercial Credit
(1)
|
Residential Credit
(2)
|
Other
|
Total
|
Investments
|
12,376,747
|
|
3,401,704
|
|
2,056,206
|
|
—
|
|
17,834,657
|
|
Cash and cash
equivalents (3)
|
51,820
|
|
41,645
|
|
23,659
|
|
—
|
|
117,124
|
|
Restricted
cash
|
666
|
|
1,734
|
|
—
|
|
—
|
|
2,400
|
|
Derivative assets, at
fair value (4)
|
26,280
|
|
105
|
|
—
|
|
—
|
|
26,385
|
|
Other
assets
|
268,033
|
|
63,585
|
|
5,894
|
|
3,966
|
|
341,478
|
|
Total
assets
|
12,723,546
|
|
3,508,773
|
|
2,085,759
|
|
3,966
|
|
18,322,044
|
|
|
|
|
|
|
|
Repurchase
agreements
|
10,864,431
|
|
1,482,869
|
|
1,563,837
|
|
—
|
|
13,911,137
|
|
Secured loans
(5)
|
549,325
|
|
1,100,675
|
|
—
|
|
—
|
|
1,650,000
|
|
Derivative
liabilities, at fair value (4)
|
20,170
|
|
184
|
|
—
|
|
—
|
|
20,354
|
|
Other
liabilities
|
177,439
|
|
25,392
|
|
15,366
|
|
—
|
|
218,197
|
|
Total
liabilities
|
11,611,365
|
|
2,609,120
|
|
1,579,203
|
|
—
|
|
15,799,688
|
|
|
|
|
|
|
|
Total equity
(allocated)
|
1,112,181
|
|
899,653
|
|
506,556
|
|
3,966
|
|
2,522,356
|
|
Adjustments to
calculate repurchase agreement debt-to-equity ratio:
|
|
|
|
|
|
Net equity in
unsecured assets (6)
|
—
|
|
(212,423)
|
|
—
|
|
(3,966)
|
|
(216,389)
|
|
Collateral pledged
against secured loans
|
(638,847)
|
|
(1,280,048)
|
|
—
|
|
—
|
|
(1,918,895)
|
|
Secured
loans
|
549,325
|
|
1,100,675
|
|
—
|
|
—
|
|
1,650,000
|
|
Equity related to
repurchase agreement debt
|
1,022,659
|
|
507,857
|
|
506,556
|
|
—
|
|
2,037,072
|
|
Debt-to-equity ratio
(7)
|
10.3
|
|
2.9
|
|
3.1
|
|
NA
|
6.2
|
|
Repurchase agreement
debt-to-equity ratio (8)
|
10.6
|
|
2.9
|
|
3.1
|
|
NA
|
6.8
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, commercial loans and investments in unconsolidated
joint ventures are included in commercial credit.
|
(2)
|
Investments in
non-Agency RMBS and GSE CRT are included in residential
credit.
|
(3)
|
Cash and cash
equivalents is allocated based on a percentage of equity for each
asset class.
|
(4)
|
Derivative assets and
liabilities are allocated based on the hedging strategy for each
asset class.
|
(5)
|
Secured loans are
allocated based on amount of collateral pledged.
|
(6)
|
Net equity in
unsecured assets and exchangeable senior notes includes commercial
loans, investments in unconsolidated joint ventures, exchangeable
senior notes and other.
|
(7)
|
Debt-to-equity ratio
is calculated as the ratio of total debt (sum of repurchase
agreements, secured loans and exchangeable senior notes) to total
equity.
|
(8)
|
Repurchase agreement
debt-to-equity ratio is calculated as the ratio of repurchase
agreements to equity related to repurchase agreement
debt.
|
Average Asset Balances
The table below presents information related to the Company's
average earning assets for the following periods.
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Average Balances
(1):
|
|
|
|
|
|
|
|
|
|
Agency
RMBS:
|
|
|
|
|
|
|
|
|
|
15 year fixed-rate,
at amortized cost
|
2,648,396
|
|
|
2,879,696
|
|
|
3,374,039
|
|
|
2,763,406
|
|
|
3,444,975
|
|
30 year fixed-rate,
at amortized cost
|
7,805,977
|
|
|
7,830,802
|
|
|
4,852,769
|
|
|
7,818,321
|
|
|
4,657,799
|
|
ARM, at amortized
cost
|
220,960
|
|
|
231,303
|
|
|
276,272
|
|
|
226,103
|
|
|
283,502
|
|
Hybrid ARM, at
amortized cost
|
1,595,131
|
|
|
1,666,890
|
|
|
1,996,026
|
|
|
1,630,813
|
|
|
2,143,014
|
|
Agency - CMO, at
amortized cost
|
254,642
|
|
|
273,884
|
|
|
309,113
|
|
|
264,210
|
|
|
318,728
|
|
Agency CMBS, at
amortized cost
|
50,179
|
|
|
—
|
|
|
—
|
|
|
25,228
|
|
|
—
|
|
Non-Agency CMBS, at
amortized cost
|
3,177,398
|
|
|
3,193,575
|
|
|
2,663,808
|
|
|
3,185,442
|
|
|
2,620,014
|
|
Non-Agency RMBS, at
amortized cost
|
1,030,949
|
|
|
1,084,584
|
|
|
1,483,354
|
|
|
1,057,619
|
|
|
1,637,336
|
|
GSE CRT, at amortized
cost
|
769,821
|
|
|
776,742
|
|
|
796,050
|
|
|
773,263
|
|
|
780,954
|
|
Commercial loans, at
amortized cost
|
178,080
|
|
|
193,540
|
|
|
278,052
|
|
|
185,767
|
|
|
276,524
|
|
Average earning
assets
|
17,731,533
|
|
|
18,131,016
|
|
|
16,029,483
|
|
|
17,930,172
|
|
|
16,162,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Earning
Asset Yields (2):
|
|
|
|
|
|
|
|
|
|
Agency
RMBS:
|
|
|
|
|
|
|
|
|
|
15 year
fixed-rate
|
1.99
|
%
|
|
2.04
|
%
|
|
1.97
|
%
|
|
2.02
|
%
|
|
2.00
|
%
|
30 year
fixed-rate
|
2.95
|
%
|
|
2.96
|
%
|
|
2.83
|
%
|
|
2.96
|
%
|
|
2.74
|
%
|
ARM
|
2.43
|
%
|
|
2.32
|
%
|
|
2.27
|
%
|
|
2.37
|
%
|
|
2.29
|
%
|
Hybrid ARM
|
2.28
|
%
|
|
2.24
|
%
|
|
2.29
|
%
|
|
2.26
|
%
|
|
2.29
|
%
|
Agency -
CMO
|
3.04
|
%
|
|
2.51
|
%
|
|
0.34
|
%
|
|
2.76
|
%
|
|
0.46
|
%
|
Agency
CMBS
|
3.63
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.63
|
%
|
|
—
|
%
|
Non-Agency
CMBS
|
4.95
|
%
|
|
4.85
|
%
|
|
4.45
|
%
|
|
4.90
|
%
|
|
4.33
|
%
|
Non-Agency
RMBS
|
7.12
|
%
|
|
7.08
|
%
|
|
5.90
|
%
|
|
7.10
|
%
|
|
5.72
|
%
|
GSE CRT
(3)
|
3.37
|
%
|
|
3.00
|
%
|
|
2.62
|
%
|
|
3.18
|
%
|
|
2.39
|
%
|
Commercial
loans
|
9.12
|
%
|
|
8.85
|
%
|
|
8.69
|
%
|
|
8.98
|
%
|
|
8.59
|
%
|
Average earning asset
yields
|
3.42
|
%
|
|
3.38
|
%
|
|
3.17
|
%
|
|
3.40
|
%
|
|
3.11
|
%
|
|
|
(1)
|
Average amounts for
each period are based on weighted month-end balances; all
percentages are annualized. Average balances are presented on an
amortized cost basis.
|
(2)
|
Average earning asset
yields for the period are calculated by dividing interest income,
including amortization of premiums and discounts, by the average
balance of the amortized cost of the investments. All yields are
annualized.
|
(3)
|
GSE CRT average
earning asset yields exclude coupon interest associated with
embedded derivatives on securities not accounted for under the fair
value option that is recorded as realized and unrealized credit
derivative income (loss), net under U.S. GAAP.
|
Average Borrowings and Equity Balances
The table below presents information related to the Company's
average borrowings and average equity for the following
periods.
|
Three Months
Ended
|
|
Six Months
Ended
|
$ in
thousands
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Average Borrowings
(1):
|
|
|
|
|
|
|
|
|
|
Agency RMBS
(2)
|
11,146,252
|
|
|
11,427,614
|
|
|
9,665,651
|
|
|
11,286,117
|
|
|
9,691,612
|
|
Agency
CMBS
|
43,984
|
|
|
—
|
|
|
—
|
|
|
22,114
|
|
|
—
|
|
Non-Agency CMBS
(2)
|
2,556,166
|
|
|
2,542,722
|
|
|
2,239,854
|
|
|
2,549,519
|
|
|
2,205,758
|
|
Non-Agency
RMBS
|
861,598
|
|
|
891,202
|
|
|
1,155,529
|
|
|
876,318
|
|
|
1,283,001
|
|
GSE CRT
|
667,972
|
|
|
674,555
|
|
|
655,715
|
|
|
671,245
|
|
|
628,122
|
|
Exchangeable senior
notes
|
—
|
|
|
116,176
|
|
|
238,530
|
|
|
57,767
|
|
|
292,009
|
|
Total average
borrowings
|
15,275,972
|
|
|
15,652,269
|
|
|
13,955,279
|
|
|
15,463,080
|
|
|
14,100,502
|
|
Maximum borrowings
during the period (3)
|
15,352,321
|
|
|
15,674,202
|
|
|
13,986,752
|
|
|
15,674,202
|
|
|
14,484,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Cost of
Funds (4):
|
|
|
|
|
|
|
|
|
|
Agency RMBS
(2)
|
1.98
|
%
|
|
1.65
|
%
|
|
1.10
|
%
|
|
1.82
|
%
|
|
0.99
|
%
|
Agency
CMBS
|
2.38
|
%
|
|
—
|
%
|
|
—
|
%
|
|
2.38
|
%
|
|
—
|
%
|
Non-Agency CMBS
(2)
|
2.68
|
%
|
|
2.28
|
%
|
|
1.63
|
%
|
|
2.48
|
%
|
|
1.49
|
%
|
Non-Agency
RMBS
|
3.19
|
%
|
|
2.91
|
%
|
|
2.47
|
%
|
|
3.05
|
%
|
|
2.32
|
%
|
GSE CRT
|
3.16
|
%
|
|
2.87
|
%
|
|
2.51
|
%
|
|
3.02
|
%
|
|
2.39
|
%
|
Exchangeable senior
notes
|
—
|
%
|
|
5.58
|
%
|
|
5.88
|
%
|
|
5.58
|
%
|
|
5.83
|
%
|
Cost of
funds
|
2.04
|
%
|
|
1.74
|
%
|
|
1.26
|
%
|
|
1.89
|
%
|
|
1.17
|
%
|
Interest rate swaps
average fixed pay rate (5)
|
2.18
|
%
|
|
2.22
|
%
|
|
2.13
|
%
|
|
2.26
|
%
|
|
2.13
|
%
|
Interest rate swaps
average floating receive rate (6)
|
(2.00)
|
%
|
|
(1.68)
|
%
|
|
(1.06)
|
%
|
|
(1.89)
|
%
|
|
(0.97)
|
%
|
Effective cost of
funds (non-GAAP measure) (7)
|
2.34
|
%
|
|
2.22
|
%
|
|
2.01
|
%
|
|
2.28
|
%
|
|
1.96
|
%
|
Average Equity
(8):
|
2,093,426
|
|
|
2,118,961
|
|
|
2,185,448
|
|
|
2,106,123
|
|
|
2,157,161
|
|
Average
debt-to-equity ratio (average during period)
|
7.3
|
x
|
|
7.4
|
x
|
|
6.4
|
x
|
|
7.3
|
x
|
|
6.5
|
x
|
Debt-to-equity ratio
(as of period end)
|
6.1
|
x
|
|
6.2
|
x
|
|
5.9
|
x
|
|
6.1
|
x
|
|
5.9
|
x
|
|
|
(1)
|
Average amounts for
each period are based on weighted month-end balances; all
percentages are annualized. Average balances are presented on an
amortized cost basis.
|
(2)
|
Agency RMBS and
non-Agency CMBS average borrowings and cost of funds include
borrowings under repurchase agreements and secured
loans.
|
(3)
|
Amount represents the
maximum borrowings at month-end during each of the respective
periods.
|
(4)
|
Average cost of funds
is calculated by dividing annualized interest expense excluding
amortization of net deferred gain (loss) on de-designated interest
rate swaps by the Company's average borrowings.
|
(5)
|
Interest rate swaps
average fixed pay rate is calculated by dividing annualized
contractual swap interest expense by the Company's average notional
balance of interest rate swaps.
|
(6)
|
Interest rate swaps
average floating receive rate is calculated by dividing annualized
contractual swap interest income by the Company's average notional
balance of interest rate swaps.
|
(7)
|
For a reconciliation
of cost of funds to effective cost of funds, see "Non-GAAP
Financial Measures."
|
(8)
|
Average equity is
calculated based on the weighted month-end balance of total equity
excluding equity attributable to preferred stockholders.
|
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SOURCE Invesco Mortgage Capital Inc.