Invesco Mortgage Capital Inc. Reports Fourth Quarter 2011 Financial Results

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Feb 22, 2012, 05:01 ET

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.