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Press release from PR Newswire

Invesco Mortgage Capital Inc. Reports Third Quarter 2012 Financial Results

Tuesday, October 30, 2012

Invesco Mortgage Capital Inc. Reports Third Quarter 2012 Financial Results16:15 EDT Tuesday, October 30, 2012ATLANTA, 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 '12Q2 '12(unaudited)(unaudited)Average Earning Assets (at amortized costs)$16,955.1$15,595.1Average Borrowed Funds14,440.313,449.7Average Equity$2,329.9$2,171.7Interest Income$140.5$139.0Interest Expense60.356.7Net Interest Income80.282.3Other Income16.67.2Operating Expenses10.09.7Net Income86.879.8Preferred Dividend2.7-Net Income after Preferred Dividend$84.1$79.8Average Portfolio Yield3.31%3.57%Average Cost of Funds1.67%1.69%Debt to Equity Ratio5.86.3Return on Average Equity14.44%14.70%Book Value per Common Share (Diluted)$20.93$18.40Earnings per Common share (Basic and Diluted)$0.72$0.68Dividend per Common share$0.65$0.65Dividend per Preferred share$0.479- Financial SummaryThe 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 CallMembers 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:                    InvescoAn 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 StatementsThis 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Three Months EndedNine Months EndedSeptember 30,September 30,$ in thousands, except per share data2012201120122011RevenuesInterest income140,477138,291421,442315,808Interest expense60,32750,452172,312100,237Net interest income80,15087,839249,130215,571Other income Gain on sale of investments12,8363,63724,9788,442Equity in earnings/(loss) and fair value change in      unconsolidated ventures3,262(993)6,2312,738Unrealized loss on interest rate swaps and swaptions(808)(453)(2,851)(655)Realized and unrealized credit default swap income1,3488582,6944,649Total other income 16,6383,04931,05215,174ExpensesManagement fee ? related party9,0537,88426,37217,612General and administrative9598293,1322,855Total expenses10,0128,71329,50420,467Net income86,77682,175250,678210,278Net income attributable to non-controlling interest1,0261,0913,0253,948Net income attributable to Invesco Mortgage Capital Inc.85,75081,084247,653206,330Dividends to preferred shareholders2,682-2,682-Net income attributable to common shareholders83,06881,084244,971206,330Earnings per share:Net income attributable to common shareholders      (basic/diluted)0.720.792.122.70Dividends declared per common share0.650.801.952.77Weighted average number of shares of common stock:Basic115,412103,028115,40576,311Diluted116,868104,472116,85877,750 INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS $ in thousands, except share and per share amountsAs ofSeptember 30,December 31,ASSETS20122011(Unaudited)Mortgage-backed securities, at fair value18,324,20814,214,149Cash and cash equivalents190,848197,224Restricted cash13,47374,496Investment related receivable7,608160,424Investments in unconsolidated ventures, at fair value55,65468,793Accrued interest receivable61,75954,167Derivative assets, at fair value1,8661,339Other assets1,8101,575Total assets18,657,22614,772,167LIABILITIES AND EQUITYLiabilities:Repurchase agreements14,876,50112,253,038Derivative liability, at fair value471,841396,780Dividends and distributions payable78,62875,933Investment related payable622,731107,032Accrued interest payable11,80912,377Accounts payable and accrued expenses 657556Due to affiliate9,6289,038Total liabilities16,071,79512,854,754Equity: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, respectively135,359-Common Stock, par value $0.01 per share; 450,000,000 shares authorized, 115,414,186 and 115,395,695 shares issued andoutstanding, at September 30, 2012 and December 31, 2011, respectively1,1541,154Additional paid in capital2,299,9502,299,543Accumulated other comprehensive income (loss)112,543(393,291)Retained earnings (distributions in excess of earnings)4,855(15,068)Total shareholders' equity2,553,8611,892,338Non-controlling interest31,57025,075Total equity2,585,4311,917,413Total liabilities and equity18,657,22614,772,167Mortgage-Backed SecuritiesThe following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of September 30, 2012:Net  Period-endQuarterlyUnamortizedUnrealizedWeighted   Weighted Weighted Principal Premium Amortized Gain/FairAverage Average  Average  $ in thousands Balance(Discount)Cost(Loss), netValueCoupon(1)Yield(2)Yield(3)Agency RMBS: 15 year fixed-rate  2,099,509 110,1292,209,63874,5402,284,178 4.10  % 2.65  % 2.40  %30 year fixed-rate  9,419,335 620,74810,040,083328,44010,368,523 4.37  % 3.12  % 2.92  %ARM  119,157 3,768122,9253,046125,971 3.17  % 2.68  % 2.75  %Hybrid ARM  615,578 14,813630,39120,892651,283 3.20  % 2.64  % 2.61  %Total Agency pass-through  12,253,579 749,45813,003,037426,91813,429,955 4.25  % 3.01  % 2.81  %Agency-CMO(4) 1,346,339 (828,433)517,9062,681520,587 2.88  % 3.58  % 2.22  %Non-Agency RMBS(5) 2,829,094 (235,582)2,593,51232,2812,625,793 4.12  % 4.87  % 4.91  %CMBS  1,623,395 1,2661,624,661123,2121,747,873 5.44  % 5.31  % 5.24  %Total  18,052,407 (313,291)17,739,116585,09218,324,208 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, 2012June 30, 2012CompanyCohortCompanyCohort15 year Agency RMBS14.623.411.321.630 year Agency RMBS13.120.712.318.9Agency Hybrid ARM RMBS20.0NA18.1NANon-Agency RMBS16.2NA16.2NAOverall14.3NA13.3NARepurchase AgreementsThe following table summarizes the Company's borrowings by type of investment for the periods ended September 30, 2012 and December 31, 2011: $ in thousandsSeptember 30, 2012December 31, 2011WeightedWeightedWeightedAverageWeightedAverageAverageRemainingAverageRemainingAmount Interest MaturityAmount Interest MaturityOutstandingRate(Days)OutstandingRate(Days)Agency RMBS11,710,6800.41%189,491,5380.38%22Non-Agency RMBS1,915,9151.77%251,916,6201.79%22CMBS1,249,9061.56%19844,8801.55%22Total14,876,5010.68%1912,253,0380.68%22 Interest Rate HedgesThe following table summarizes our hedging activity as of September 30, 2012: $ in thousandsFixed Interest RateCounterpartyNotionalMaturity Datein ContractThe Bank of New York Mellon100,0005/24/20131.83%The Bank of New York Mellon200,0006/15/20131.73%SunTrust Bank100,0007/15/20142.79%Deutsche Bank AG200,0001/15/20151.08%Deutsche Bank AG250,0002/15/20151.14%Credit Suisse International100,0002/24/20153.26%Credit Suisse International100,0003/24/20152.76%Wells Fargo Bank, N.A.100,0007/15/20152.85%Wells Fargo Bank, N.A.50,0007/15/20152.44%Morgan Stanley Capital Services, Inc.300,0001/24/20162.12%The Bank of New York Mellon300,0001/24/20162.13%Morgan Stanley Capital Services, Inc.300,0004/5/20162.48%Citibank, N.A.300,0004/15/20161.67%The Bank of New York Mellon500,0004/15/20162.24%Credit Suisse International500,0004/15/20162.27%JPMorgan Chase Bank, N.A.500,0005/16/20162.31%Goldman Sachs Bank USA500,0005/24/20162.34%Wells Fargo Bank, N.A.250,0006/15/20162.67%Goldman Sachs Bank USA250,0006/15/20162.67%JPMorgan Chase Bank, N.A.500,0006/24/20162.51%Citibank, N.A.500,00010/15/20161.93%Deutsche Bank AG150,0002/5/20182.90%Morgan Stanley Capital Services, Inc.100,0004/5/20183.10%JPMorgan Chase Bank, N.A.200,0005/15/20182.93%UBS AG500,0005/24/20181.10%The Royal Bank of Scotland Plc 500,0009/5/20181.04%Wells Fargo Bank, N.A.200,0003/15/20213.14%Citibank, N.A.200,0005/25/20212.83%Total7,750,0002.14% Average BalancesThe 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 theThree Months endedNine Months endedSeptember 30,September 30,$ in thousands 2012 201120122011Average Balances*: Agency RMBS: 15 year fixed-rate, at amortized cost  2,262,090 2,323,0102,365,0842,097,35030 year fixed-rate, at amortized cost  9,244,544 5,514,2777,969,2013,985,708ARM, at amortized cost  136,990 109,952161,71581,295Hybrid ARM, at amortized cost  796,446 1,297,0701,175,280894,151MBS-CMO, at amortized cost  502,646 126,300450,41975,258Non-Agency RMBS, at amortized cost  2,496,031 2,555,2162,391,0761,895,121CMBS, at amortized cost  1,516,371 1,364,9141,329,005902,722Average MBS portfolio  16,955,118 13,290,73915,841,7809,931,605Average 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 8,399,11110,884,3026,468,159Non-Agency RMBS  1,842,351 1,998,2551,767,1301,383,534CMBS  1,145,575 1,069,243980,341737,356Total borrowed funds  14,440,324 11,466,60913,631,7738,589,049Maximum borrowings during the period(2) 14,890,062 12,181,84514,890,06212,181,845Average 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 1,847,3202,198,6331,526,080Average debt/equity ratio (average   during period) 6.20x6.21x6.20x5.63xDebt/equity ratio (as of period end) 5.75x6.33x5.75x6.33x* 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. SOURCE Invesco Mortgage Capital Inc.For further information: Bill Hensel, +1-404-479-2886