Invesco Mortgage Capital Inc. Reports First Quarter 2011 Financial Results

ATLANTA, May 10, 2011 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended March 31, 2011.

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

The Company reported net income of $53.7 million, or $1.01 per share (basic and diluted), for the quarter ended March 31, 2011 compared to $40.9 million, or $1.00 per share (basic and diluted), for the quarter ended December 31, 2010.  During the first quarter of 2011, the Company completed a follow-on common stock offering generating net proceeds of $460.1 million.  The 31% increase in quarterly net income was driven by an increase in average earning assets as the Company invested the funds from the follow-on common stock offering from December 2010 and March 2011.

The Company also reported its book value per share as of March 31, 2011 was $21.24, compared to $20.49 per share as of December 31, 2010.

"The current economic conditions, the steepness of the yield curve, and historically low financing costs continue to provide an outstanding opportunity to invest in securitized mortgage assets," said Richard King, President and Chief Executive Officer.  "We are pleased that in the first quarter we were able to achieve our goals of maintaining attractive earnings and growing book value.  We also strategically raised capital which was accretive to book value, added scale, and found attractive target assets with the new capital."


($ in millions, except per share amounts)


Q1 '11

Q4 '10


(unaudited)

(unaudited)

Average Earning Assets (at fair value)

$6,413.5

$4,874.9

Average Borrowed Funds

5,406.9

3,921.4

Average Equity

1,156.2

924.1




Interest Income

68.5

50.9

Interest Expense

15.6

10.6

Net Interest Income

52.9

40.3

Other Income

5.6

4.8

Operating Expenses

4.8

4.2

Net Income

53.7

40.9




Average Portfolio Yield

4.27%

4.18%

Cost of Funds

1.15%

1.09%

Debt to Equity Ratio

3.7

4.1

Return on Average Equity

18.58%

17.69%

Book Value per Share (Diluted)

$21.24

$20.49

Earnings per share (Basic and Diluted)

$1.01

$1.00

Dividend

$1.00

$0.97




Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $9.3 billion as of March 31, 2011, an increase of $3.7 billion from December 31, 2010.  For the quarter ended March 31, 2011, average earning assets were $6.4 billion which generated interest income of $68.5 million.  This represents an increase of $1.5 billion, or 31%, and $17.6 million, or 35%, respectively, from the fourth quarter of 2010.  The increase was primarily driven by the follow-on common stock offerings completed in December 2010 and March 2011.

For the quarter ended March 31, 2011, the Company had average borrowings of approximately $5.4 billion and interest expense including cost of hedging of $15.6 million, compared to $3.9 billion and $10.6 million, respectively, for the fourth quarter of 2010.  The increase in average borrowed funds and interest expense was primarily the result of increasing the size of our investment portfolio.  

Our average cost of funds was 1.15% and 1.09% for the first quarter of 2011 and fourth quarter of 2010, respectively.  The increase in our cost of funds was primarily the result additional interest expense related to our hedging activities.

Operating expenses for the first quarter 2011 totaled $4.8 million compared to $4.2 million for the fourth quarter 2010.  The ratio of operating expenses to average equity in the first quarter of 2011 decreased 0.12% to 1.68% as the Company benefited from improved operating efficiency during the quarter.  

The Company declared a dividend of $1.00 per share for the first quarter of 2011.  The dividend was paid on April 27, 2011.

About Invesco Mortgage Capital Inc.

Invesco Mortgage Capital Inc. is a real estate investment trust that focuses on financing and managing residential and commercial mortgage-backed securities and mortgage loans. Invesco Mortgage Capital Inc. is externally managed and advised by Invesco Advisers, Inc., a subsidiary of Invesco Ltd. (NYSE: IVZ), a leading independent global investment management company.  Additional information is available at www.invescomortgagecapital.com.

Earnings Call

Members of the investment community and the general public are invited to listen to the Company's earnings conference call today, Tuesday, May 10, 2011, at 8:30 a.m. ET, by calling one of the following numbers:

US/Canada Toll Free:

888-942-8507

International:

415-228-4839 

Passcode:

Invesco



An audio replay will be available until 5:00 pm ET on May 31, 2011 by calling:

866-517-3728 (North America)
203-369-2040 (International)

The presentation slides that will be reviewed during the call will be available on the Company's website at www.invescomortgagecapital.com.

Cautionary Notice Regarding Forward-Looking Statements

This press release, and comments made in the associated conference call today, may include statements and information that constitute "forward-looking statements" within the meaning of the U.S. securities laws.  Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance. In addition, words such as "will," "anticipates," "expects" and "plans," as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge investors to carefully consider the risks identified under the captions "Risk Factors," "Forward-Looking Statements" and "Management's

Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the Securities and Exchange Commission's website at www.sec.gov.  

All written or oral forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice.  We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



Three Months Ended

$ in thousands, except per share data

March 31, 2011


December 31, 2010

Revenues




Interest income

68,536


50,945

Interest expense

15,578


10,652

Net interest income

52,958


40,293





Other income (loss)

Gain on sale of investments, net

1,200


2,392

Equity in earnings and fair value change in unconsolidated limited partnerships

1,858


2,388

Loss on other-than-temporarily impaired securities


Unrealized loss on interest rate swaps

(5)


(46)

Realized and unrealized credit default swap income

2,532


13

Total other income

5,585


4,747





Expenses




Management fee – related party

3,975


2,986

General and administrative

868


1,174

Total expenses

4,843


4,160

Net income

53,700


40,880





Net income attributable to non-controlling interest

1,452


1,466

Net income attributable to common shareholders

52,248


39,414


Earnings per share:




Net income attributable to common shareholders (basic and diluted)

1.01


1.00

Dividends declared per common share

1.00


0.97

Weighted average number of shares of common stock:




   Basic

51,857


39,354

   Diluted

53,287


40,785








INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


$ in thousands, except per share amounts

As of

ASSETS

March 31, 2011


December 31, 2010


(Unaudited)



Mortgage-backed securities, at fair value

9,297,597


5,578,333

Cash

280,244


63,552

Restricted cash

142,245


101,144

Investment related receivable

22,215


7,601

Investments in unconsolidated limited partnerships, at fair value

51,274


54,725

Accrued interest receivable

31,105


22,503

Derivative Assets, at fair value

59,118


33,255

Other assets

1,408


1,287

Total assets

9,885,206


5,862,400





LIABILITIES AND SHAREHOLDERS' EQUITY




Liabilities:




Repurchase agreements

5,751,161


4,344,659

Derivative liability, at fair value

32,073


37,850

Dividends and distributions payable

51,729


49,741

Investment related payables

2,476,475


372,285

Accrued interest payable

5,389


2,579

Accounts payable and accrued expenses

1,073


1,065

Due to affiliate

4,315


3,407

Total liabilities

8,322,215


4,811,586





Invesco Mortgage Capital Inc. Shareholders' equity:




Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized, 0 shares issued and outstanding


Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 72,154,375 and 49,854,196 shares issued and outstanding, at March 31, 2011 and December 31, 2010, respectively

722


499

Additional paid in capital

1,472,642


1,002,809

Accumulated other comprehensive income

63,263


24,015

Distributions in excess of earnings

(6,228)


(8,173)

Total Invesco Mortgage Capital Inc. shareholders' equity

1,530,399


1,019,150





Non-controlling interest

32,592


31,664

Total equity

1,562,991


1,050,814





Total liabilities and shareholders' equity

9,885,206


5,862,400




Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of March 31, 2011:


$ in thousands

Principal
Balance


Unamortized
Premium
(Discount)


Amortized
Cost


Unrealized
Gain/
(Loss)


Fair
Value


Net
Weighted
Average
Coupon
(1)


Average
Yield
(2)

Agency RMBS:














15 year fixed-rate 

1,922,157


103,952


2,026,109


(9,562)


2,016,547


4.46%


2.95%

30 year fixed-rate

3,744,278


253,223


3,997,501


(2,392)


3,995,109


5.34%


3.84%

ARM

49,054


1,415


50,469


(226)


50,243


3.89%


3.05%

Hybrid ARM

1,054,328


12,869


1,067,197


(3,287)


1,063,910


3.17%


2.97%

Total Agency

6,769,817


371,459


7,141,276


(15,467)


7,125,809


4.74%


3.45%















MBS-CMO

153,265


(116,674)


36,591


3,152


39,743


4.30%


3.04%

Non-Agency MBS

1,863,216


(374,846)


1,488,370


29,260


1,517,630


4.58%


7.97%

CMBS

594,630


(4,488)


590,142


24,273


614,415


5.26%


5.38%

Total

9,380,928


(124,549)


9,256,379


41,218


9,297,597


4.74%


4.30%




(1)  Net weighted average coupon ("WAC") is presented net of servicing and other fees.
(2)  Average yield incorporates future prepayment assumptions.

Constant Prepayment Rates (CPR)

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



March 31, 2011


December 31, 2010


Company


Cohort


Company


Cohort









15 year Agency RMBS

9.0


16.1


12.0


28.8

30 year Agency RMBS

13.4


19.8


14.6


27.8

Agency Hybrid ARM RMBS

6.4


N/A


15.8


N/A

Non-Agency RMBS

14.0


N/A


16.0


N/A

Overall

11.1


N/A


12.8


N/A




Repurchase Agreements

The following table summarizes the Company's borrowings by type of investment for the period ended March 31, 2011 and December 31, 2010:


$ in thousands

March 31, 2011


December 31, 2010

Repurchase
Agreements

Amount
Outstanding

Weighted
Average
Interest
Rate


Amount
Outstanding

Weighted
Average
Interest
Rate

Agency RMBS

4,482,851

0.29%


3,483,440

0.33%

Non-Agency RBS

788,559

1.54%


459,979

1.76%

CMBS

479,751

1.33%


401,240

1.30%

Total Borrowings

5,751,161

0.55%


4,344,659

0.57%




Interest Rate Hedges

The following table summarizes our hedging activity as of March 31, 2011:


Remaining Interest Rate Swap Term


Notional


Average


Average

Amount

Fixed Pay

Maturity

$ in thousands

Rate

(Years)

1 year or less


-


-


-

Greater than 1 year and less than 3 years


475,000


1.88%


1.9

Greater than 3 years and less than 5 years


1,500,000


2.04%


4.3

Greater than 5 years


3,950,000


2.45%


5.9

Total


5,925,000


2.30%


5.1




Approximately $3.6 billion of the total $5.9 billion of the swap notional amount on March 31, 2011 were forward-starting interest rate swaps with effective dates beyond March 31, 2011.  Additionally, we had approximately $2.5 billion of unsettled securities which would have increased our total outstanding borrowing balance if the purchases would have been settled with repurchase agreements.

SOURCE Invesco Mortgage Capital Inc.



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http://www.invescomortgagecapital.com

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