Invesco Mortgage Capital Inc. Reports Second Quarter 2011 Financial Results

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Jul 27, 2011, 04:00 ET

ATLANTA, July 27, 2011 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended June 30, 2011.

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

The Company reported net income of $74.4 million, or $0.99 per share (basic and diluted), for the quarter ended June 30, 2011 compared to $53.7 million, or $1.01 per share (basic and diluted), for the quarter ended March 31, 2011. The 39% 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 offerings completed in March and June 2011.

The Company also reported its book value per share as of June 30, 2011 was $19.34, compared to $21.24 per share as of March 31, 2011. The decrease in book value was primarily driven by the decrease in the value of our interest rate swaps.

In June, 2011, the Company completed a follow-on common stock offering raising net proceeds of approximately $389 million. The Company estimates that approximately 68% of the equity was invested by June 30, 2011 with the remaining funds invested by approximately July 15, 2011.

"We are pleased with our results for the second quarter," said Richard King, President and Chief Executive Officer. "During the quarter we were able to generate $0.99 in earnings per share while deploying the proceeds from our strategic capital raises. The current environment presents attractive opportunities to purchase our target assets, allowing us to efficiently invest the new capital. In the second quarter we saw a negative impact to our book value from the decline in rates on our interest rate swap hedges. We are pleased with the prepayment and credit performance of our assets, and believe our strategy of protecting net interest income for the long run is the appropriate approach in today's environment."


($ in millions, except per share amounts)
	Q2 '11	Q1 '11
	(unaudited)	(unaudited)
Average Earning Assets (at fair value)	$10,165.9	$6,413.5
Average Borrowed Funds	8,893.6	5,406.9
Average Equity	1,567.1	1,156.2

Interest Income	109.0	68.5
Interest Expense	34.2	15.6
Net Interest Income	74.8	52.9
Other Income	6.5	5.6
Operating Expenses	6.9	4.8
Net Income	$74.4	$53.7

Average Portfolio Yield	4.29%	4.27%
Cost of Funds	1.54%	1.15%
Debt to Equity Ratio	5.2	3.7
Return on Average Equity	18.99%	18.58%
Book Value per Share (Diluted)	$19.34	$21.24
Earnings per share (Basic and Diluted)	$0.99	$1.01
Dividend	$0.97	$1.00

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $12.2 billion as of June 30, 2011, an increase of $2.9 billion from March 31, 2011. For the quarter ended June 30, 2011, average earning assets were $10.2 billion which generated interest income of $109.0 million. This represents an increase of $3.8 billion, or 59%, and $40.5 million, or 59%, respectively, from the first quarter of 2011. The increase was primarily driven by the follow-on common stock offerings completed in March and June 2011.

For the quarter ended June 30, 2011, the Company had average borrowings of approximately $8.9 billion and interest expense including cost of hedging of $34.2 million, compared to $5.4 billion and $15.6 million, respectively, for the first quarter of 2011. 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 1.54% and 1.15% for the second quarter of 2011 and the first quarter of 2011, respectively. The increase in our cost of funds was primarily the result of additional interest expense related to our hedging activities.

Operating expenses for the second quarter of 2011 totalled $6.9 million compared to $4.8 million for the first quarter of 2011. The ratio of operating expenses to average equity in the second quarter of 2011 increased 0.08% to 1.76% during the quarter.

The Company declared a dividend of $0.97 per share for the second quarter of 2011. The dividend will be paid on July 28, 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, Thursday, July 28, 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 August 11, 2011 by calling:

866-435-5409 (North America)

203-369-1029 (International)

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

Cautionary Notice Regarding Forward-Looking Statements

This press release, 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. 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				Six Months Ended
				June 30,				June 30,
$ in thousands, except per share data				2011		2010		2011		2010

	Revenues
	Interest income				108,981		29,207		177,517		47,217
	Interest expense				34,207		6,379		49,785		10,031
	Net interest income				74,774		22,828		127,732		37,186

	Other income
	Gain on sale of investments				3,605		642		4,805		1,375
	Equity in earnings and fair value change in unconsolidated limited
		partnerships			1,873		1,649		3,731		2,095
	Loss on other-than-temporarily impaired securities				-		(262)		-		(386)
	Unrealized loss on interest rate swaps				(197)		(10)		(202)		(35)
	Realized and unrealized credit default swap income				1,259		-		3,791		-
	Total other income				6,540		2,019		12,125		3,049

	Expenses
	Management fee – related party				5,753		1,771		9,728		3,055
	General and administrative				1,157		1,017		2,026		1,954
	Total expenses				6,910		2,788		11,754		5,009
	Net income				74,404		22,059		128,103		35,226

	Net income attributable to non-controlling interest				1,406		1,309		2,857		2,427
	Net income attributable to common shareholders				72,998		20,750		125,246		32,799

	Earnings per share:
	Net income attributable to common shareholders
		(basic/diluted)			0.99		0.91		2.00		1.70
	Dividends declared per common share				0.97		0.74		1.97		1.52
	Weighted average number of shares of common stock:
			Basic		73,486		22,808		62,731		19,266
			Diluted		74,929		24,239		64,167		20,695

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
$ in thousands, except per share amounts		As of
		June 30,		December 31,
ASSETS		2011		2010

		(Unaudited)

Mortgage-backed securities, at fair value			12,155,861		5,578,333
Cash			66		63,552
Restricted cash			134,037		101,144
Investment related receivable			121,120		7,601
Investments in unconsolidated limited partnerships, at fair value			48,177		54,725
Accrued interest receivable			46,295		22,503
Derivative assets, at fair value			19,131		33,255
Other assets			2,063		1,287
	Total assets		12,526,750		5,862,400

LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements			9,560,766		4,344,659
Derivative liability, at fair value			139,129		37,850
Dividends and distributions payable			72,575		49,741
Investment related payable			910,552		372,285
Accrued interest payable			9,853		2,579
Accounts payable and accrued expenses			1,645		1,065
Due to affiliate			6,863		3,407
	Total liabilities		10,701,383		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, 92,945,506 and 49,854,196 shares issued and
	outstanding, at June 30, 2011 and December 31, 2010, respectively		929		499
Additional paid in capital			1,889,173		1,002,809
Accumulated other comprehensive income (loss)			(89,838)		24,015
Distributions in excess of earnings			(4,423)		(8,173)
	Total shareholders' equity		1,795,841		1,019,150

Non-controlling interest			29,526		31,664
	Total equity		1,825,367		1,050,814

	Total liabilities and equity		12,526,750		5,862,400

Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of June 30, 2011:


June 30, 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		1,996,178	106,361	2,102,539	15,732	2,118,271	4.43	%	3.24	%
	30 year fixed-rate		4,672,172	320,753	4,992,925	45,550	5,038,475	5.26	%	3.99	%
	ARM		118,688	2,981	121,669	1,094	122,763	3.60	%	3.22	%
	Hybrid ARM		1,233,212	27,161	1,260,373	11,102	1,271,475	3.34	%	2.98	%
		Total Agency	8,020,250	457,256	8,477,506	73,478	8,550,984	4.73	%	3.64	%

MBS-CMO			353,790	(278,533)	75,257	3,530	78,787	3.17	%	6.23	%
Non-Agency MBS			2,757,121	(408,616)	2,348,505	(28,085)	2,320,420	4.46	%	5.90	%
CMBS			1,229,100	(6,617)	1,222,483	(16,813)	1,205,670	5.42	%	5.49	%
Total			12,360,261	(236,510)	12,123,751	32,110	12,155,861	4.70	%	4.28	%


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


	June 30, 2011		March 31, 2011
	Company	Cohort	Company	Cohort

15 year Agency RMBS	7.7	12.8	9.0	16.1
30 year Agency RMBS	9.2	13.0	13.4	19.8
Agency Hybrid ARM RMBS	5.6	N/A	6.4	N/A
Non-Agency RMBS	11.5	N/A	14.0	N/A
Overall	8.1	N/A	11.1	N/A

Repurchase Agreements

The following table summarizes the Company's borrowings by type of investment for the period ended June 30, 2011 and December 31, 2010:


$ in thousands		June 30, 2011				December 31, 2010
			Weighted				Weighted
			Average				Average
	Amount		Interest		Amount		Interest
	Outstanding		Rate		Outstanding		Rate
Agency RMBS		7,174,858	0.23	%		3,483,440	0.33	%
Non-Agency RBS		1,510,666	1.44	%		459,979	1.76	%
CMBS		875,242	1.28	%		401,240	1.30	%
Total		9,560,766	0.52	%		4,344,659	0.57	%

Interest Rate Hedges

The following table summarizes our hedging activity as of June 30, 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	%	1.7
Greater than 3 years and less than 5 years	5,100,000	2.25	%	4.7
Greater than 5 years	1,350,000	2.59	%	7.2
Total	6,925,000	2.29	%	4.9