Invesco Mortgage Capital Inc. Reports Second Quarter 2012 Financial Results

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Aug 01, 2012, 04:01 ET

ATLANTA, Aug. 1, 2012 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended June 30, 2012.

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

The Company reported net income of $79.8 million, or $0.68 per share (basic and diluted), for the quarter ended June 30, 2012 compared to $84.1 million, or $0.72 per share (basic and diluted), for the quarter ended March 31, 2012.

The Company also reported its book value per share as of June 30, 2012 was $18.40 compared to $18.42 per share as of March 31, 2012.

"We're pleased with our second quarter results and believe they continue to demonstrate earnings and book value stability," said Richard King, President and Chief Executive Officer. "As we progress into the third quarter, we have seen a continuation of book value improvement and the preferred offering we completed in July will be supportive of the dividend."

($ in millions, except per share amounts)
	Q2 '12	Q1 '12
	(unaudited)
Average Earning Assets (at fair value)	$15,855.5	$15,256.9
Average Borrowed Funds	13,449.7	12,977.3
Average Equity	2,171.7	2,082.5

Interest Income	$139.0	142.0
Interest Expense	56.7	55.3
Net Interest Income	82.3	86.7
Other Income	7.2	7.2
Operating Expenses	9.7	9.8
Net Income	79.8	84.1

Average Portfolio Yield	3.51%	3.72%
Average Cost of Funds	1.69%	1.70%
Debt to Equity Ratio	6.3	6.0
Return on Average Equity	14.70%	16.16%
Book Value per Share (Diluted)	$18.40	$18.42
Earnings per share (Basic and Diluted)	$0.68	$0.72
Dividend	$0.65	$0.65

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $16.0 billion as of June 30, 2012, an increase of $0.4 billion from March 31, 2012. For the quarter ended June 30, 2012, average earning assets were $15.9 billion representing an increase of $0.6 billion from March 31, 2012. The portfolio generated interest income of $139.0 million which was down $3.0 million from March 31, 2012.

For the quarter ended June 30, 2012, the Company had average borrowings of approximately $13.4 billion and interest expense including cost of hedging of $56.7 million, compared to $13.0 billion and $55.3 million, respectively, for the first quarter of 2012. Our average cost of funds was 1.69% and 1.70% for the second quarter of 2012 and the first quarter of 2012, respectively.

Operating expenses for the second quarter of 2012 totalled $9.7 million compared to $9.8 million for the first quarter of 2012. The ratio of operating expenses to average equity in the second quarter of 2012 decreased 0.09% to 1.79%.

The Company declared a dividend of $0.65 per share for the second quarter of 2012. The dividend was paid on July 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, August 2, 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 August 16, 2012 by calling:

800-839-1117 (North America)
+1 203-369-3355 (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, 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				2012		2011		2012		2011

	Revenues
	Interest income				139,004		108,981		280,964		177,517
	Interest expense				56,700		34,207		111,985		49,785
	Net interest income				82,304		74,774		168,979		127,732

	Other income
	Gain on sale of investments				6,098		3,605		12,143		4,805
	Equity in earnings and fair value change in unconsolidated
		ventures			1,961		1,873		2,970		3,731
	Unrealized loss on interest rate swaps and swaptions				(1,533)		(197)		(2,043)		(202)
	Realized and unrealized credit default swap income				690		1,259		1,347		3,791
	Total other income				7,216		6,540		14,417		12,125

	Expenses
	Management fee – related party				8,681		5,753		17,320		9,728
	General and administrative				1,045		1,157		2,174		2,026
	Total expenses				9,726		6,910		19,494		11,754
	Net income				79,794		74,404		163,902		128,103

	Net income attributable to non-controlling interest				973		1,406		1,999		2,857
	Net income attributable to common shareholders				78,821		72,998		161,903		125,246

	Earnings per share:
	Net income attributable to common shareholders
		(basic/diluted)			0.68		0.99		1.40		2.00
	Dividends declared per common share				0.65		0.97		1.30		1.97
	Weighted average number of shares of common stock:
			Basic		115,409		73,486		115,402		62,731
			Diluted		116,868		74,929		116,853		64,167

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

$ in thousands, except per share amounts		As of
		June 30,		December 31,
ASSETS		2012		2011

		(Unaudited)

Mortgage-backed securities, at fair value			16,049,674		14,214,149
Cash			168,610		197,224
Restricted cash			14,696		74,496
Investment related receivable			16,234		160,424
Investments in unconsolidated ventures, at fair value			52,384		68,793
Accrued interest receivable			56,930		54,167
Derivative assets, at fair value			1,711		1,339
Other assets			1,988		1,575
	Total assets		16,362,227		14,772,167

LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements			13,541,325		12,253,038
Derivative liability, at fair value			446,569		396,780
Dividends and distributions payable			75,942		75,933
Investment related payable			126,869		107,032
Accrued interest payable			11,159		12,377
Accounts payable and accrued expenses			1,501		556
Due to affiliate			8,949		9,038
	Total liabilities		14,212,314		12,854,754

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, 115,409,592 and 115,395,695 shares issued and
	outstanding, at June 30, 2012 and December 31, 2011, respectively		1,154		1,154
Additional paid in capital			2,299,809		2,299,543
Accumulated other comprehensive loss			(175,767)		(393,291)
Distributions in excess of earnings			(3,193)		(15,068)
	Total shareholders' equity		2,122,003		1,892,338

Non-controlling interest			27,910		25,075
	Total equity		2,149,913		1,917,413

	Total liabilities and equity		16,362,227		14,772,167

Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of June 30, 2012:

$ in thousands			Principal Balance	Unamortized Premium (Discount)	Amortized Cost	Unrealized Gain/ (Loss), net	Fair Value	Net Weighted Average Coupon⁽¹⁾		Period-end Weighted Average Yield⁽²⁾		Quarterly Weighted Average Yield⁽³⁾



Agency RMBS:
	15 year fixed-rate		2,197,081	116,495	2,313,576	58,562	2,372,138	4.12	%	2.73	%	2.60	%
	30 year fixed-rate		7,556,547	498,390	8,054,937	200,333	8,255,270	4.65	%	3.39	%	3.16	%
	ARM		164,436	4,413	168,849	3,747	172,596	3.21	%	2.65	%	2.66	%
	Hybrid ARM		1,142,784	29,897	1,172,681	27,952	1,200,633	3.26	%	2.53	%	2.73	%
		Total Agency pass-through	11,060,848	649,195	11,710,043	290,594	12,000,637	4.38	%	3.16	%	2.99	%

	Agency-CMO⁽⁴⁾		1,185,974	(732,664)	453,310	1,769	455,079	2.91	%	3.18	%	2.50	%
	Non-Agency RMBS⁽⁵⁾		2,545,321	(241,461)	2,303,860	(53,259)	2,250,601	4.33	%	4.97	%	5.37	%
	CMBS		1,328,757	(14,565)	1,314,192	29,165	1,343,357	5.48	%	5.58	%	5.32	%
Total			16,120,900	(339,495)	15,781,405	268,269	16,049,674	4.31	%	3.58	%	3.51	%


(1) Net weighted average coupon as of June 30, 2012 ("WAC") is presented net of servicing and other fees.
(2) Average yield as of June 30, 2012 incorporates future prepayment and loss assumptions.
(3) Average yield for the three months ended June 30, 2012 incorporates future prepayment and loss assumptions.
(4) The Agency-CMO held by the Company is 14.5% interest only securities.
(5) The non-Agency RMBS held by the Company is 84.5% variable rate, 10.3% fixed rate, and 5.2% floating 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"):

	June 30, 2012		March 31, 2012
	Company	Cohort	Company	Cohort

15 year Agency RMBS	11.3	21.6	10.3	21.7
30 year Agency RMBS	12.3	18.9	10.2	18.6
Agency Hybrid ARM RMBS	18.1	NA	16.2	NA
Non-Agency RMBS	16.2	NA	16.0	NA
Overall	13.3	NA	12.1	NA

Repurchase Agreements

The following table summarizes the Company's borrowings by type of investment for the periods ended June 30, 2012 and December 31, 2011:

$ in thousands	June 30, 2012				December 31, 2011
				Weighted				Weighted
		Weighted		Average		Weighted		Average
		Average		Remaining		Average		Remaining
	Amount	Interest		Maturity	Amount	Interest		Maturity
	Outstanding	Rate		(Days)	Outstanding	Rate		(Days)
Agency RMBS	10,927,821	0.40	%	19	9,491,538	0.38	%	22
Non-Agency RMBS	1,673,271	1.76	%	34	1,916,620	1.79	%	22
CMBS	940,233	1.55	%	20	844,880	1.55	%	22
Total	13,541,325	0.65	%	21	12,253,038	0.68	%	22

Interest Rate Hedges

The following table summarizes our hedging activity as of June 30, 2012:

			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 three and six months ended June 30, 2012 and 2011:

		As of and for the		As of and for the
		Three Months ended		Six Months ended
		June 30,		June 30,
$ in thousands		2012	2011	2012	2011
*Average Balances:**
Agency RMBS:
	15 year fixed-rate, at fair value	2,425,483	2,064,440	2,468,860	1,981,753
	30 year fixed-rate, at fair value	7,975,031	4,128,583	7,553,780	3,228,217
	ARM, at fair value	174,514	92,283	177,368	66,632
	Hybrid ARM, at fair value	1,286,519	1,013,785	1,392,654	691,757
	MBS-CMO, at fair value	455,063	64,272	426,967	52,408
Non-Agency RMBS, at fair value		2,252,836	1,957,483	2,283,792	1,582,960
CMBS, at fair value		1,286,018	845,069	1,252,760	696,341
Average MBS portfolio		15,855,464	10,165,915	15,556,181	8,300,068

Average Portfolio Yields: ⁽¹⁾
Agency RMBS:
	15 year fixed-rate,	2.60%	3.16%	2.63%	3.14%
	30 year fixed-rate	3.16%	3.64%	3.30%	3.55%
	ARM	2.66%	3.08%	2.54%	2.92%
	Hybrid ARM	2.73%	2.85%	2.63%	2.65%
	MBS-CMO	2.50%	7.25%	2.19%	6.23%
Non-Agency RMBS		5.37%	7.24%	5.65%	7.57%
CMBS		5.32%	4.99%	5.44%	5.00%
Average MBS portfolio		3.51%	4.29%	3.61%	4.28%

*Average Borrowings:**
	Agency RMBS	10,862,133	6,784,196	10,590,714	5,502,683
	Non-Agency RMBS	1,667,755	1,405,948	1,727,824	1,076,174
	CMBS	919,852	703,485	894,978	571,413
Total borrowed funds		13,449,740	8,893,629	13,213,516	7,150,270
Maximum borrowings during the period⁽²⁾		13,799,710	9,560,766	13,799,710	9,560,766

Average Cost of Funds: ⁽³⁾
	Agency RMBS	0.36%	0.23%	0.34%	0.25%
	Non-Agency RMBS	1.77%	1.29%	1.79%	1.35%
	CMBS	1.54%	1.12%	1.56%	1.20%
	Unhedged cost of funds	0.62%	0.47%	0.62%	0.49%
	Hedged cost of funds	1.69%	1.54%	1.69%	1.39%

Average Equity: ⁽⁴⁾		2,171,664	1,567,126	2,127,086	1,362,798
Average debt/equity ratio (average during period)		6.19x	5.68x	6.21x	5.25x
Debt/equity ratio (as of period end)		6.30x	5.24x	6.30x	5.24x

* 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) Amount represents the maximum borrowings at month-end during each of the respective periods.
(3) Average cost of funds is calculated by dividing interest expense, by our average borrowings.
(4) Average equity is calculated based on a weighted balance basis.