Invesco Mortgage Capital Inc. Reports Third Quarter 2011 Financial Results

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Nov 02, 2011, 04:01 ET

ATLANTA, Nov. 2, 2011 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended September 30, 2011.

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

The Company reported net income of $82.2 million, or $0.79 per share (basic and diluted), for the quarter ended September 30, 2011 compared to $74.4 million, or $0.99 per share (basic and diluted), for the quarter ended June 30, 2011. During the third quarter of 2011, the Company completed a follow-on common stock offering generating net proceeds of $362.2 million. The 10% 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 in June and August 2011.

The Company also reported its book value per share as of September 30, 2011 was $16.47 compared to $19.34 per share as of June 30, 2011.

"During the third quarter, we saw an opportunity to acquire high quality assets at attractive levels given the uncertainty created by the U.S. debt ceiling debate and the turmoil in Europe. We also took the opportunity to participate with WL Ross, Invesco Real Estate, and other partners in buying a package of commercial mortgage loans auctioned by a large financial institution," said Richard King, President and Chief Executive Officer. "We generated $0.79 in earnings for the quarter while investing the proceeds from our capital raises. We believe our portfolio is well positioned for the current environment with the majority of our Agency RMBS invested in prepayment protected pools. While our credit assets have seen declines in prices, the underlying collateral continues to perform and our earnings power remains attractive."

($ in millions, except per share amounts)
	Q3 '11	Q2 '11
	(unaudited)	(unaudited)
Average Earning Assets (at fair value)	$13,324.2	$10,165.9
Average Borrowed Funds	11,466.6	8,893.6
Average Equity	1,847.3	1,567.1

Interest Income	138.3	109.0
Interest Expense	50.5	34.2
Net Interest Income	87.8	74.8
Other Income	3.1	6.5
Operating Expenses	8.7	6.9
Net Income	$82.2	$74.4

Average Portfolio Yield	4.15%	4.29%
Average Cost of Funds	1.76%	1.54%
Debt to Equity Ratio	6.3	5.2
Return on Average Equity	17.79%	18.99%
Book Value per Share (Diluted)	$16.47	$19.34
Earnings per share (Basic and Diluted)	$0.79	$0.99
Dividend	$0.80	$0.97

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $14.3 billion as of September 30, 2011, an increase of $2.1 billion from June 30, 2011. For the quarter ended September 30, 2011, average earning assets were $13.3 billion which generated interest income of $138.3 million. This represents an increase of $3.1 billion, or 30%, and $29.3 million, or 27%, respectively, from the second quarter of 2011. The increase was primarily driven by the follow-on common stock offerings completed in June and August 2011.

For the quarter ended September 30, 2011, the Company had average borrowings of approximately $11.5 billion and interest expense including cost of hedging of $50.5 million, compared to $8.9 billion and $34.2 million, respectively, for the second 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 1.76% and 1.54% for the third quarter of 2011 and the second 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 third quarter of 2011 totalled $8.7 million compared to $6.9 million for the second quarter of 2011. The ratio of operating expenses to average equity in the third quarter of 2011 increased 0.13% to 1.89%.

The Company declared a dividend of $0.80 per share for the third quarter of 2011. The dividend was paid on October 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, Thursday, November 3, 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 November 17, 2011 by calling:

866-372-3817 (North America)
203-369-0256 (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				Nine Months Ended
			September 30,				September 30,
$ in thousands, except per share data			2011		2010		2011		2010

	Revenues
	Interest income			138,291		36,067		315,808		83,284
	Interest expense			50,452		8,873		100,237		18,904
	Net interest income			87,839		27,194		215,571		64,380

	Other income
	Gain (loss) on sale of investments			3,637		(311)		8,442		1,064
	Equity in earnings (loss) and fair value change in unconsolidated ventures			(993)		3,793		2,738		5,888
	Loss on other-than-temporarily impaired securities			-		(124)		-		(510)
	Unrealized loss on interest rate swaps			(453)		(9)		(655)		(44)
	Realized and unrealized credit default swap income			858		-		4,649		-
	Total other income			3,049		3,349		15,174		6,398

	Expenses
	Management fee – related party			7,884		2,039		17,612		5,094
	General and administrative			829		885		2,855		2,839
	Total expenses			8,713		2,924		20,467		7,933
	Net income			82,175		27,619		210,278		62,845

	Net income attributable to non-controlling interest			1,091		1,433		3,948		3,860
	Net income attributable to common shareholders			81,084		26,186		206,330		58,985

	Earnings per share:
	Net income attributable to common shareholders (basic/diluted)			0.79		1.01		2.70		2.74
	Dividends declared per common share			0.80		1.00		2.77		2.52
	Weighted average number of shares of common stock:
		Basic		103,028		26,047		76,311		21,552
		Diluted		104,472		27,478		77,750		22,981

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

		(Unaudited)

Mortgage-backed securities, at fair value			14,336,951		5,578,333
Cash			56,914		63,552
Restricted cash			254,587		101,144
Investment related receivable			430,053		7,601
Investments in unconsolidated ventures, at fair value			110,907		54,725
Accrued interest receivable			55,713		22,503
Derivative assets, at fair value			1,580		33,255
Other assets			1,812		1,287
	Total assets		15,248,517		5,862,400

LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements			12,181,845		4,344,659
Derivative liability, at fair value			388,886		37,850
Dividends and distributions payable			93,449		49,741
Investment related payable			640,766		372,285
Accrued interest payable			10,780		2,579
Accounts payable and accrued expenses			916		1,065
Due to affiliate			8,092		3,407
	Total liabilities		13,324,734		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, 115,387,548 and 49,854,196 shares issued and
	outstanding, at September 30, 2011 and December 31, 2010, respectively		1,154		499
Additional paid in capital			2,299,309		1,002,809
Accumulated other comprehensive income (loss)			(386,187)		24,015
Distributions in excess of earnings			(15,648)		(8,173)
	Total shareholders' equity		1,898,628		1,019,150

Non-controlling interest			25,155		31,664
	Total equity		1,923,783		1,050,814

	Total liabilities and equity		15,248,517		5,862,400

Mortgage-Backed Securities The following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of September 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		2,360,188	128,782	2,488,970	43,399	2,532,369	4.33	%	3.13	%
	30 year fixed-rate		5,701,102	400,866	6,101,968	110,900	6,212,868	5.17	%	3.94	%
	ARM		92,785	1,850	94,635	2,087	96,722	3.53	%	3.14	%
	Hybrid ARM		1,267,544	28,045	1,295,589	23,359	1,318,948	3.31	%	2.81	%
		Total Agency	9,421,619	559,543	9,981,162	179,745	10,160,907	4.69	%	3.59	%

	MBS-CMO		629,502	(487,871)	141,631	1,769	143,400	3.30	%	6.24	%
	Non-Agency MBS(3)		3,061,712	(316,705)	2,745,007	(79,399)	2,665,608	5.84	%	6.39	%
	CMBS		1,492,384	(21,422)	1,470,962	(103,926)	1,367,036	5.48	%	5.66	%
Total			14,605,217	(266,455)	14,338,762	(1,811)	14,336,951	4.70	%	4.11	%


(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 MBS held by the Company is 84.3% fixed rate and 15.7% floating rate, based on fair value.

The following table summarizes our non-Agency RMBS portfolio by asset type as of September 30, 2011 and June 30, 2011, respectively:


$ in thousands	September 30, 2011	% of Non-Agency	June 30, 2011	% of Non-Agency
Re-REMIC Senior	1,640,916	61.6%	1,074,303	46.3%
Prime	708,575	26.6%	820,792	35.4%
Alt-A	304,551	11.4%	412,640	17.8%
Subprime	11,566	0.4%	12,686	0.5%
Total Non-Agency	2,665,608	100.0%	2,320,421	100.0%

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"):

	September 30, 2011		June 30, 2011
	Company	Cohort	Company	Cohort

15 year Agency RMBS	9.1	20.5	7.7	12.8
30 year Agency RMBS	9.8	16.2	9.2	13.0
Agency Hybrid ARM RMBS	14.9	NA	5.6	N/A
Non-Agency RMBS	8.1	NA	11.5	N/A
Overall	8.7	NA	8.1	N/A

Repurchase Agreements

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

$ in thousands		September 30, 2011				December 31, 2010
			Weighted				Weighted
			Average				Average
	Amount		Interest		Amount		Interest
	Outstanding		Rate		Outstanding		Rate
Agency RMBS		9,044,073	0.29	%		3,483,440	0.33	%
Non-Agency RBS		2,114,019	1.51	%		459,979	1.76	%
CMBS		1,023,753	1.44	%		401,240	1.30	%
Total		12,181,845	0.60	%		4,344,659	0.57	%

Interest Rate Hedges

The following table summarizes our hedging activity as of September 30, 2011:

			Fixed Interest Rate
Counterparty	Notional	Maturity Date	in Contract
The Bank of New York Mellon	175,000	08/05/2012	2.07%
The Bank of New York Mellon	100,000	05/24/2013	1.83%
The Bank of New York Mellon	200,000	06/15/2013	1.73%
SunTrust Bank	100,000	07/15/2014	2.79%
Deutsche Bank AG	200,000	01/15/2015	1.08%
Deutsche Bank AG	250,000	02/15/2015	1.14%
Credit Suisse International	100,000	02/24/2015	3.26%
Credit Suisse International	100,000	03/24/2015	2.76%
Wells Fargo Bank, N.A.	100,000	07/15/2015	2.85%
Wells Fargo Bank, N.A.	50,000	07/15/2015	2.44%
Morgan Stanley Capital Services, Inc.	300,000	01/24/2016	2.12%
The Bank of New York Mellon	300,000	01/24/2016	2.13%
Morgan Stanley Capital Services, Inc.	300,000	04/05/2016	2.48%
Citibank, N.A.	300,000	04/15/2016	1.67%
The Bank of New York Mellon	500,000	04/15/2016	2.24%
Credit Suisse International	500,000	04/15/2016	2.27%
JPMorgan Chase Bank, N.A.	500,000	05/16/2016	2.31%
Goldman Sachs Bank USA	500,000	05/24/2016	2.34%
Wells Fargo Bank, N.A.	250,000	06/15/2016	2.67%
Goldman Sachs Bank USA	250,000	06/15/2016	2.67%
JPMorgan Chase Bank, N.A.	500,000	06/24/2016	2.51%
Citibank, N.A.	500,000	10/15/2016	1.93%
Deutsche Bank AG	150,000	02/05/2018	2.90%
Morgan Stanley Capital Services, Inc.	100,000	04/05/2018	3.10%
JPMorgan Chase Bank, N.A.	200,000	05/15/2018	2.93%
Wells Fargo Bank, N.A.	200,000	03/15/2021	3.14%
Citibank, N.A.	200,000	05/25/2021	2.83%
Total	6,925,000		2.29%