Invesco Mortgage Capital Inc. Reports Fourth Quarter 2011 Financial Results

Feb 22, 2012, 17:01 ET from Invesco Mortgage Capital Inc.

ATLANTA, Feb. 22, 2012 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended December 31, 2011.

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

The Company reported net income of $76.5 million, or $0.66 per share (basic and diluted), for the quarter ended December 31, 2011 compared to $82.2 million, or $0.79 per share (basic and diluted), for the quarter ended September 30, 2011.  The Company also reported its book value per share as of December 31, 2011 was $16.41 compared to $16.47 per share as of September 30, 2011.

"Economic conditions improved during the fourth quarter and we saw book value stabilization as a result," said Richard King, President and Chief Executive Officer.  "Our fourth quarter portfolio moves combined with the improved markets for mortgage-backed securities has resulted in book value improvement of approximately 5% since year end.  We believe our portfolio is well-constructed to emphasize dividend stability as we also continue to focus on improving our book value."

($ in millions, except per share amounts)

Q4 '11

Q3 '11

(unaudited)

(unaudited)

Average Earning Assets (at fair value)

$13,979.4

$13,324.2

Average Borrowed Funds

12,126.9

11,466.6

Average Equity

1,921.7

1,847.3

Interest Income

137.5

138.3

Interest Expense

55.0

50.5

Net Interest Income

82.5

87.8

Other Income

3.6

3.1

Operating Expenses

9.6

8.7

Net Income

$76.5

$82.2

Average Portfolio Yield

3.94%

4.15%

Average Cost of Funds

1.81%

1.76%

Debt to Equity Ratio

6.4

6.3

Return on Average Equity

15.93%

17.79%

Book Value per Share (Diluted)

$16.41

$16.47

Earnings per share (Basic and Diluted)

$0.66

$0.79

Dividend

$0.65

$0.80

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $14.2 billion as of December 31, 2011, a decrease of $0.1 billion from September 30, 2011.  For the quarter ended December 31, 2011, average earning assets were $14.0 billion representing an increase of $0.7 billion from September 30, 2011.  The portfolio generated interest income of $137.5 million which was down $0.8 million from September 30, 2011.  

For the quarter ended December 31, 2011, the Company had average borrowings of approximately $12.1 billion and interest expense including cost of hedging of $55.0 million, compared to $11.5 billion and $50.5 million, respectively, for the third quarter of 2011.  The increase in average borrowed funds was primarily the result of our portfolio realignment in the fourth quarter which placed a higher concentration of assets in agency RMBS.  Interest expense increased as the last of our previously purchased forward-starting swaps began to pay and increased funding rates on our credit assets.  Our average cost of funds was 1.81% and 1.76% for the fourth quarter of 2011 and the third quarter of 2011, respectively.  

Operating expenses for the fourth quarter of 2011 totaled $9.6 million compared to $8.7 million for the third quarter of 2011.  The ratio of operating expenses to average equity in the fourth quarter of 2011 increased 0.12% to 2.01%.

The Company declared a dividend of $0.65 per share for the fourth quarter of 2011.  The dividend was paid on January 27, 2012.

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, Thursday, February 23, 2012, 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 March 8, 2012 by calling:

866-465-2111 (North America) 203-369-1428 (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

Year ended Months Ended

December 31,

December 31,

$ in thousands, except per share data

2011

2010

2011

2010

Revenues

Interest income

137,545

50,945

453,352

134,229

Interest expense

55,004

10,652

155,241

29,556

Net interest income

82,541

40,293

298,111

104,673

Other income

Gain (loss) on sale of investments

2,517

2,392

10,959

3,456

Equity in earnings (loss) and fair value change in unconsolidated

ventures

563

2,388

3,301

8,276

Loss on other-than-temporarily impaired securities

-

-

-

(510)

Unrealized loss on interest rate swaps

(109)

(46)

(764)

(90)

Realized and unrealized credit default swap income

659

13

5,308

13

Total other income

3,630

4,747

18,804

11,145

Expenses

Management fee – related party

8,647

2,986

26,259

8,080

General and administrative

1,003

1,174

3,859

4,013

Total expenses

9,650

4,160

30,118

12,093

Net income

76,521

40,880

286,797

103,725

Net income attributable to non-controlling interest

934

1,466

4,882

5,326

Net income attributable to common shareholders

75,587

39,414

281,915

98,399

Earnings per share:

Net income attributable to common shareholders

(basic/diluted)

0.66

1.00

3.27

3.78

Dividends declared per common share

0.65

0.97

3.42

3.49

Weighted average number of shares of common stock:

Basic

115,392

39,354

86,365

26,039

Diluted

116,835

40,785

87,804

27,468

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

$ in thousands, except per share amounts

As of

December 31,

December 31,

ASSETS

2011

2010

(U    (Unaudited)

Mortgage-backed securities, at fair value

14,214,149

5,578,333

Cash

197,224

63,552

Restricted cash

74,496

101,144

Investment related receivable

160,424

7,601

Investments in unconsolidated ventures, at fair value

68,793

54,725

Accrued interest receivable

54,167

22,503

Derivative assets, at fair value

1,339

33,255

Other assets

1,575

1,287

Total assets

14,772,167

5,862,400

LIABILITIES AND EQUITY

Liabilities:

Repurchase agreements

12,253,038

4,344,659

Derivative liability, at fair value

396,780

37,850

Dividends and distributions payable

75,933

49,741

Investment related payable

107,032

372,285

Accrued interest payable

12,377

2,579

Accounts payable and accrued expenses

556

1,065

Due to affiliate

9,038

3,407

Total liabilities

12,854,754

4,811,586

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, 115,395,695 and 49,854,196 shares issued and

outstanding, at December 31, 2011 and 2010, respectively

1,154

499

Additional paid in capital

2,299,543

1,002,809

Accumulated other comprehensive income (loss)

(393,291)

24,015

Distributions in excess of earnings

(15,068)

(8,173)

Total shareholders' equity

1,892,338

1,019,150

Non-controlling interest

25,075

31,664

Total equity

1,917,413

1,050,814

Total liabilities and equity

14,772,167

5,862,400

Mortgage-Backed Securities

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

Net

Unamortized

Unrealized

Weighted

Principal

Premium

Amortized

Gain/

Fair

Average

Average

$ in thousands

Balance

(Discount)

Cost

(Loss)

Value

Coupon (1)

Yield (2)

Agency RMBS:

15 year fixed-rate

2,289,495

123,610

2,413,105

36,454

2,449,559

4.18

%

2.85

%

30 year fixed-rate

6,055,045

410,257

6,465,302

116,309

6,581,611

4.95

%

3.66

%

ARM

113,413

2,398

115,811

2,065

117,876

3.40

%

3.07

%

Hybrid ARM

1,321,339

30,516

1,351,855

22,630

1,374,485

3.29

%

2.59

%

Total Agency

9,779,292

566,781

10,346,073

177,458

10,523,531

4.53

%

3.33

%

MBS-CMO

765,172

(592,342)

172,830

(4,368)

168,462

2.86

%

3.52

%

Non-Agency RMBS(3)

2,719,797

(252,135)

2,467,662

(108,434)

2,359,228

4.57

%

5.07

%

CMBS

1,250,607

(21,805)

1,228,802

(65,874)

1,162,928

5.38

%

5.60

%

Total

14,514,868

(299,501)

14,215,367

(1,218)

14,214,149

4.52

%

3.83

%

(1) Net weighted average coupon ("WAC") is presented net of servicing and other fees.

(2) Average yield incorporates future prepayment and loss assumptions.

(3) The non-Agency RMBS held by the Company is 9.8% fixed rate, 5.2% floating rate and 85.0% variable rate based on fair value.

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"):

December 31, 2011

September 30, 2011

Company

Cohort

Company

Cohort

15 year Agency RMBS

11.2

25.6

9.1

20.5

30 year Agency RMBS

12.1

20.6

9.8

16.2

Agency Hybrid ARM RMBS

19.4

NA

14.9

N/A

Non-Agency RMBS (1)

14.8

NA

8.1

N/A

Overall

13.3

NA

8.7

N/A

(1) For the three months ended December 31, 2011, the calculation of CPR for Non-Agency RMBS has been modified to reflect voluntary prepayments and recoveries upon default and is adjusted for the effect of additional subordination on Re-REMIC Senior investments.  If the same calculation were to be applied for the three months ended September 30, 2011, the non-Agency RMBS CPR would have been 17.7 and the overall CPR would have been 12.4.

Repurchase Agreements

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

$ in thousands

December 31, 2011

December 31, 2010

Weighted

Weighted

Average

Average

Amount

Interest

Amount

Interest

Outstanding

Rate

Outstanding

Rate

Agency RMBS

9,491,538

0.38

%

3,483,440

0.33

%

Non-Agency RBS

1,916,620

1.79

%

459,979

1.76

%

CMBS

844,880

1.55

%

401,240

1.30

%

Total

12,253,038

0.68

%

4,344,659

0.57

%

Interest Rate Hedges

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

Fixed Interest Rate

Counterparty

Notional

Maturity Date

in Contract

The Bank of New York Mellon

175,000

8/5/2012

2.07%

The Bank of New York Mellon

100,000

5/24/2013

1.83%

The Bank of New York Mellon

200,000

6/15/2013

1.73%

SunTrust Bank

100,000

7/15/2014

2.79%

Deutsche Bank AG

200,000

1/15/2015

1.08%

Deutsche Bank AG

250,000

2/15/2015

1.14%

Credit Suisse International

100,000

2/24/2015

3.26%

Credit Suisse International

100,000

3/24/2015

2.76%

Wells Fargo Bank, N.A.

100,000

7/15/2015

2.85%

Wells Fargo Bank, N.A.

50,000

7/15/2015

2.44%

Morgan Stanley Capital Services, Inc.

300,000

1/24/2016

2.12%

The Bank of New York Mellon

300,000

1/24/2016

2.13%

Morgan Stanley Capital Services, Inc.

300,000

4/5/2016

2.48%

Citibank, N.A.

300,000

4/15/2016

1.67%

The Bank of New York Mellon

500,000

4/15/2016

2.24%

Credit Suisse International

500,000

4/15/2016

2.27%

JPMorgan Chase Bank, N.A.

500,000

5/16/2016

2.31%

Goldman Sachs Bank USA

500,000

5/24/2016

2.34%

Wells Fargo Bank, N.A.

250,000

6/15/2016

2.67%

Goldman Sachs Bank USA

250,000

6/15/2016

2.67%

JPMorgan Chase Bank, N.A.

500,000

6/24/2016

2.51%

Citibank, N.A.

500,000

10/15/2016

1.93%

Deutsche Bank AG

150,000

2/5/2018

2.90%

Morgan Stanley Capital Services, Inc.

100,000

4/5/2018

3.10%

JPMorgan Chase Bank, N.A.

200,000

5/15/2018

2.93%

Wells Fargo Bank, N.A.

200,000

3/15/2021

3.14%

Citibank, N.A.

200,000

5/25/2021

2.83%

Total

6,925,000

2.29%

Average Balances

The following table shows the average balances for the months ended December 31, 2011:

Three Months ended

Year ended Months ended

December 31,

December 31,

$ in thousands

2011 

2010 

2011 

2010 

Average Balances*:

Agency RMBS:

15 year fixed-rate, at fair value (Including CMOs)

2,559,040

1,681,252

2,279,661

811,966

30 year fixed-rate, at fair value

6,316,786

1,863,523

4,603,117

874,214

ARM, at fair value

102,512

20,542

87,033

11,819

Hybrid ARM, at fair value

1,329,884

46,490

1,009,829

83,878

Non-Agency RMBS, at fair value

2,435,012

817,112

2,030,195

622,575

CMBS, at fair value

1,236,181

445,937

988,105

262,182

Average MBS portfolio

13,979,415

4,874,856

10,997,939

2,666,634

Average Portfolio Yields (1):

Agency RMBS:

15 year fixed-rate, (Including CMOs)

2.65%

2.58%

2.96%

2.87%

30 year fixed-rate

3.46%

2.97%

3.54%

3.37%

ARM

2.84%

2.51%

2.96%

2.48%

Hybrid ARM

2.46%

1.50%

2.55%

0.93%

Non-Agency RMBS

6.31%

10.25%

6.88%

10.94%

CMBS

6.05%

4.47%

5.54%

4.68%

Average MBS portfolio

3.94%

4.18%

4.12%

5.03%

Average Borrowings*:

Agency RMBS

9,179,788

3,079,239

7,146,066

1,570,211

Non-Agency RMBS

1,994,379

526,445

1,536,245

339,209

CMBS

952,777

315,682

791,212

194,505

Total borrowed funds

12,126,944

3,921,366

9,473,523

2,103,924

Average Cost of Funds (2):

Agency RMBS

0.32%

0.28%

0.27%

0.27%

Non-Agency RMBS

1.67%

1.58%

1.47%

1.59%

CMBS

1.53%

1.89%

1.35%

2.77%

Unhedged cost of funds

0.64%

0.58%

0.56%

0.71%

Hedged cost of funds

1.81%

1.09%

1.64%

1.40%

Average Equity (3):

1,921,684

924,151

1,625,794

590,177

Average debt/equity ratio (average during period)

6.31x

4.24x

5.83x

3.56x

Debt/equity ratio (as of period end)

6.39x

4.13x

6.39x

4.13x

* Average amounts for each period are based on weighted month end balances, all percentages are annualized.

(1) Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by our average of the investment balance at fair value.

(2) Average cost of funds is calculated by dividing interest expense, by our average borrowings.

(3) Average equity is calculated based on a weighted balance basis.

SOURCE Invesco Mortgage Capital Inc.



RELATED LINKS

http://www.invescomortgagecapital.com