Invesco Mortgage Capital Inc. Reports Third Quarter 2012 Financial Results

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Oct 30, 2012, 04:15 ET

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

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

The Company reported net income of $84.1 million after deducting the preferred dividend of $2.7 million, or $0.72 per common share (basic and diluted), for the quarter ended September 30, 2012 compared to $79.8 million, or $0.68 per common share (basic and diluted), for the quarter ended June 30, 2012. The Company also reported its book value per common share as of September 30, 2012 was $20.93 compared to $18.40 per common share as of June 30, 2012.

"We're pleased to announce a solid third quarter results. During the quarter, we increased our earnings to $0.72 per share, grew book value per share by 13.8%, increased our earning assets and lowered leverage," said Richard King, President and Chief Executive Officer. "We accomplished this by positioning our portfolio to benefit from Federal Reserve purchases of MBS and we used the appreciation in our investment portfolio to both increase earning assets and strengthen our balance sheet. We believe our hybrid strategy puts us in the best position to invest in this environment."

($ in millions, except per share amounts)
	Q3 '12	Q2 '12
	(unaudited)	(unaudited)
Average Earning Assets (at amortized costs)	$16,955.1	$15,595.1
Average Borrowed Funds	14,440.3	13,449.7
Average Equity	$2,329.9	$2,171.7

Interest Income	$140.5	$139.0
Interest Expense	60.3	56.7
Net Interest Income	80.2	82.3
Other Income	16.6	7.2
Operating Expenses	10.0	9.7
Net Income	86.8	79.8
Preferred Dividend	2.7	-
Net Income after Preferred Dividend	$84.1	$79.8

Average Portfolio Yield	3.31%	3.57%
Average Cost of Funds	1.67%	1.69%
Debt to Equity Ratio	5.8	6.3
Return on Average Equity	14.44%	14.70%
Book Value per Common Share (Diluted)	$20.93	$18.40
Earnings per Common share (Basic and Diluted)	$0.72	$0.68
Dividend per Common share	$0.65	$0.65
Dividend per Preferred share	$0.479	-

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $18.3 billion as of September 30, 2012, an increase of $2.3 billion from June 30, 2012. For the quarter ended September 30, 2012, average earning assets were $17.0 billion representing an increase of $1.4 billion from June 30, 2012. The portfolio generated interest income of $140.5 million which was up $1.5 million from June 30, 2012.

For the quarter ended September 30, 2012, the Company had average borrowings of approximately $14.4 billion and interest expense including cost of hedging of $60.3 million, compared to $13.4 billion and $56.7 million, respectively, for the second quarter of 2012. Our average cost of funds was 1.67% and 1.69% for the third quarter of 2012 and the second quarter of 2012, respectively.

Operating expenses for the third quarter of 2012 totalled $10.0 million compared to $9.7 million for the second quarter of 2012. The ratio of operating expenses to average equity in the third quarter of 2012 decreased 0.07% to 1.72%.

The Company declared a common stock dividend of $0.65 per common share for the third quarter of 2012. The dividend was paid on October 29, 2012.

The Company declared a preferred stock dividend of $0.479 per preferred share for the third quarter of 2012. The dividend was paid on October 25, 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, Wednesday, October 31, 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 November 14, 2012 by calling:

800-447-7319 (North America)
+1 203-369-1155 (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				Nine Months Ended
			September 30,				September 30,
$ in thousands, except per share data			2012		2011		2012		2011

	Revenues
	Interest income			140,477		138,291		421,442		315,808
	Interest expense			60,327		50,452		172,312		100,237
	Net interest income			80,150		87,839		249,130		215,571

	Other income
	Gain on sale of investments			12,836		3,637		24,978		8,442
	Equity in earnings/(loss) and fair value change in
	unconsolidated ventures			3,262		(993)		6,231		2,738
	Unrealized loss on interest rate swaps and swaptions			(808)		(453)		(2,851)		(655)
	Realized and unrealized credit default swap income			1,348		858		2,694		4,649
	Total other income			16,638		3,049		31,052		15,174

	Expenses
	Management fee – related party			9,053		7,884		26,372		17,612
	General and administrative			959		829		3,132		2,855
	Total expenses			10,012		8,713		29,504		20,467
	Net income			86,776		82,175		250,678		210,278
	Net income attributable to non-controlling interest			1,026		1,091		3,025		3,948
	Net income attributable to Invesco Mortgage Capital Inc.			85,750		81,084		247,653		206,330
	Dividends to preferred shareholders			2,682		-		2,682		-
	Net income attributable to common shareholders			83,068		81,084		244,971		206,330

	Earnings per share:
	Net income attributable to common shareholders
	(basic/diluted)			0.72		0.79		2.12		2.70
	Dividends declared per common share			0.65		0.80		1.95		2.77
	Weighted average number of shares of common stock:
		Basic		115,412		103,028		115,405		76,311
		Diluted		116,868		104,472		116,858		77,750

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
$ in thousands, except share and per share amounts		As of
		September 30,		December 31,
ASSETS		2012		2011

		(Unaudited)

Mortgage-backed securities, at fair value			18,324,208		14,214,149
Cash and cash equivalents			190,848		197,224
Restricted cash			13,473		74,496
Investment related receivable			7,608		160,424
Investments in unconsolidated ventures, at fair value			55,654		68,793
Accrued interest receivable			61,759		54,167
Derivative assets, at fair value			1,866		1,339
Other assets			1,810		1,575
	Total assets		18,657,226		14,772,167

LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements			14,876,501		12,253,038
Derivative liability, at fair value			471,841		396,780
Dividends and distributions payable			78,628		75,933
Investment related payable			622,731		107,032
Accrued interest payable			11,809		12,377
Accounts payable and accrued expenses			657		556
Due to affiliate			9,628		9,038
	Total liabilities		16,071,795		12,854,754

Equity:
Preferred Stock, par value $0.01 per share; 50,000,000 shares
	authorized, 7.75% series A cumulative redeemable, $25 liquidation
	preference, 5,600,000 and no shares issued and outstanding at
	September 30, 2012 and December 31, 2011, respectively		135,359		-
Common Stock, par value $0.01 per share; 450,000,000 shares
	authorized, 115,414,186 and 115,395,695 shares issued and
	outstanding, at September 30, 2012 and December 31, 2011, respectively		1,154		1,154
Additional paid in capital			2,299,950		2,299,543
Accumulated other comprehensive income (loss)			112,543		(393,291)
Retained earnings (distributions in excess of earnings)			4,855		(15,068)
	Total shareholders' equity		2,553,861		1,892,338

Non-controlling interest			31,570		25,075
	Total equity		2,585,431		1,917,413

	Total liabilities and equity		18,657,226		14,772,167

Mortgage-Backed Securities

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

								Net		Period-end		Quarterly
				Unamortized		Unrealized		Weighted		Weighted		Weighted
			Principal	Premium	Amortized	Gain/	Fair	Average		Average		Average
$ in thousands			Balance	(Discount)	Cost	(Loss), net	Value	Coupon⁽¹⁾		Yield⁽²⁾		Yield⁽³⁾
Agency RMBS:
	15 year fixed-rate		2,099,509	110,129	2,209,638	74,540	2,284,178	4.10	%	2.65	%	2.40	%
	30 year fixed-rate		9,419,335	620,748	10,040,083	328,440	10,368,523	4.37	%	3.12	%	2.92	%
	ARM		119,157	3,768	122,925	3,046	125,971	3.17	%	2.68	%	2.75	%
	Hybrid ARM		615,578	14,813	630,391	20,892	651,283	3.20	%	2.64	%	2.61	%
		Total Agency pass-through	12,253,579	749,458	13,003,037	426,918	13,429,955	4.25	%	3.01	%	2.81	%

	Agency-CMO⁽⁴⁾		1,346,339	(828,433)	517,906	2,681	520,587	2.88	%	3.58	%	2.22	%
	Non-Agency RMBS⁽⁵⁾		2,829,094	(235,582)	2,593,512	32,281	2,625,793	4.12	%	4.87	%	4.91	%
	CMBS		1,623,395	1,266	1,624,661	123,212	1,747,873	5.44	%	5.31	%	5.24	%
Total			18,052,407	(313,291)	17,739,116	585,092	18,324,208	4.23	%	3.51	%	3.31	%


(1) Net weighted average coupon as of September 30, 2012 ("WAC") is presented net of servicing and other fees.
(2) Average yield based on amortized cost as of September 30, 2012 incorporates future prepayment and loss assumptions.
(3) For the three months ended September 30, 2012, the presentation of the quarterly weighted average yield has been changed to be based on amortized cost to be more consistent with the period-end weighted average yield. Prior periods will be adjusted accordingly for comparative purposes. Average yield based on average amortized cost for the three months ended September 30, 2012 incorporates future prepayment and loss assumptions.
(4) Agency-CMO held by the Company are 14.1% interest only securities.
(5) The non-Agency RMBS held by the Company is 85.5% variable rate, 9.8% fixed rate, and 4.7% 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"):

	September 30, 2012		June 30, 2012
	Company	Cohort	Company	Cohort

15 year Agency RMBS	14.6	23.4	11.3	21.6
30 year Agency RMBS	13.1	20.7	12.3	18.9
Agency Hybrid ARM RMBS	20.0	NA	18.1	NA
Non-Agency RMBS	16.2	NA	16.2	NA
Overall	14.3	NA	13.3	NA

Repurchase Agreements

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

$ in thousands	September 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		11,710,680	0.41	%	18		9,491,538	0.38	%	22
Non-Agency RMBS		1,915,915	1.77	%	25		1,916,620	1.79	%	22
CMBS		1,249,906	1.56	%	19		844,880	1.55	%	22
Total		14,876,501	0.68	%	19		12,253,038	0.68	%	22

Interest Rate Hedges

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

$ in thousands			Fixed Interest Rate
Counterparty	Notional	Maturity Date	in Contract
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%
UBS AG	500,000	5/24/2018	1.10%
The Royal Bank of Scotland Plc	500,000	9/5/2018	1.04%
Wells Fargo Bank, N.A.	200,000	3/15/2021	3.14%
Citibank, N.A.	200,000	5/25/2021	2.83%
Total	7,750,000		2.14%

Average Balances

The following table shows the average balances for the three and nine months ended September 30, 2012 and 2011:


		As of and for the			As of and for the
		Three Months ended			Nine Months ended
		September 30,			September 30,
$ in thousands		2012	2011		2012		2011
*Average Balances:**
Agency RMBS:
	15 year fixed-rate, at amortized cost	2,262,090		2,323,010		2,365,084		2,097,350
	30 year fixed-rate, at amortized cost	9,244,544		5,514,277		7,969,201		3,985,708
	ARM, at amortized cost	136,990		109,952		161,715		81,295
	Hybrid ARM, at amortized cost	796,446		1,297,070		1,175,280		894,151
	MBS-CMO, at amortized cost	502,646		126,300		450,419		75,258
Non-Agency RMBS, at amortized cost		2,496,031		2,555,216		2,391,076		1,895,121
CMBS, at amortized cost		1,516,371		1,364,914		1,329,005		902,722
Average MBS portfolio		16,955,118		13,290,739		15,841,780		9,931,605

Average Portfolio Yields: ⁽¹⁾
Agency RMBS:
	15 year fixed-rate,	2.40%		2.88%		2.60%		3.04%
	30 year fixed-rate	2.92%		3.71%		3.22%		3.63%
	ARM	2.75%		3.16%		2.63%		3.02%
	Hybrid ARM	2.61%		2.60%		2.67%		2.63%
	MBS-CMO	2.22%		3.21%		2.21%		4.69%
Non-Agency RMBS		4.91%		6.50%		5.30%		7.13%
CMBS		5.24%		5.46%		5.41%		5.32%
Average MBS portfolio		3.31%		4.16%		3.55%		4.24%

*Average Borrowings:**
	Agency RMBS	11,452,398		8,399,111		10,884,302		6,468,159
	Non-Agency RMBS	1,842,351		1,998,255		1,767,130		1,383,534
	CMBS	1,145,575		1,069,243		980,341		737,356
Total borrowed funds		14,440,324		11,466,609		13,631,773		8,589,049
Maximum borrowings during the period⁽²⁾		14,890,062		12,181,845		14,890,062		12,181,845

Average Cost of Funds: ⁽³⁾
	Agency RMBS	0.41%		0.25%		0.37%		0.25%
	Non-Agency RMBS	1.77%		1.39%		1.78%		1.37%
	CMBS	1.59%		1.35%		1.57%		1.28%
	Unhedged cost of funds	0.68%		0.55%		0.64%		0.52%
	Hedged cost of funds	1.67%		1.76%		1.69%		1.56%

Average Equity: ⁽⁴⁾		2,329,921		1,847,320		2,198,633		1,526,080
Average debt/equity ratio (average during period)		6.20x		6.21x		6.20x		5.63x
Debt/equity ratio (as of period end)		5.75x		6.33x		5.75x		6.33x

* Average amounts for each period are based on weighted month end balances, all percentages are annualized. For the three and nine months ended September 30, 2012, the average balances have been changed to be presented by the average of the amortized cost. Prior periods will be adjusted accordingly for comparative purposes.
(1) Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by our average of the amortized cost of the investments.
(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 average basis.