ATLANTA, Aug. 3,
2023 /PRNewswire/ -- Invesco Mortgage Capital Inc.
(NYSE: IVR) (the "Company") today announced financial results for
the quarter ended June 30, 2023.
- Net loss per common share of $0.03 compared to net income of $0.39 in Q1 2023
- Earnings available for distribution per common
share(1) of $1.45 compared
to $1.50 in Q1 2023
- Common stock dividend of $0.40
per common share, unchanged from Q1 2023
- Book value per common share(2) of $11.98 compared to $12.61 as of March 31,
2023
- Economic return(3) of (1.8)% compared to 1.7% in Q1
2023
Update from John
Anzalone, Chief Executive Officer
"Agency RMBS performance improved during the second quarter as
investor appetite for risk assets increased given greater
confidence that the U.S. economy may avoid a recession. Lower
coupon valuations rebounded from poor performance in the first
quarter as concerns regarding regional banking stability
dissipated, while higher coupon valuations benefited to a lesser
extent from the modest decline in interest rate volatility.
However, higher interest rates and a faster than expected pace of
sales from the FDIC negatively impacted our book value, due in part
to a decline in premiums on our specified pool investments. Against
this backdrop, our book value per common share ended the quarter at
$11.98, representing a decline of
5.0% from March 31st, and
when combined with our $0.40 common
dividend produced an economic return of (1.8)% for the quarter.
"Earnings available for distribution ("EAD") for the second
quarter remained strong at $1.45 per
common share. EAD is well supported and is expected to continue to
benefit from our hedging strategy, as borrowing costs are hedged by
low-cost, pay-fixed swaps with a weighted average maturity of over
seven years.
"Our debt-to-equity ratio ended the second quarter at 5.9x, up
marginally from 5.8x as of March
31st. As of the end of the quarter, substantially
all of our $5.5 billion investment
portfolio was invested in Agency RMBS, and we maintained a sizeable
balance of unrestricted cash and unencumbered investments totaling
$492.3 million.
"We believe the conclusion of the Federal Reserve's tightening
cycle will result in a reduction of interest rate volatility and,
when combined with compelling valuations and favorable funding
conditions, will support an attractive investment environment for
Agency RMBS in the second half of 2023."
|
(1) Earnings available
for distribution (and by calculation, earnings available for
distribution per common share) is a non-Generally Accepted
Accounting Principles ("GAAP") financial measure. Refer to the
section entitled "Non-GAAP Financial Measures" for important
disclosures and a reconciliation to the most comparable U.S. GAAP
measure.
|
|
(2) Book value per
common share is calculated as total stockholders' equity less the
liquidation preference of the Company's Series B Preferred Stock
and Series C Preferred Stock ($112.5 million and $194.3 million as
of June 30, 2023, respectively, and $113.4 million and $195.4
million as of March 31, 2023, respectively), divided by total
common shares outstanding.
|
|
(3) Economic return for
the quarter ended June 30, 2023 is defined as the change in
book value per common share from March 31, 2023 to
June 30, 2023 of ($0.63); plus dividends declared of $0.40 per
common share; divided by the March 31, 2023 book value per
common share of $12.61. Economic return for the quarter ended
March 31, 2023 is defined as the change in book value per
common share from December 31, 2022 to March 31, 2023 of
($0.18); plus dividends declared of $0.40 per common share; divided
by the December 31, 2022 book value per common share of
$12.79.
|
Key performance indicators for the quarters ended June 30,
2023 and March 31, 2023 are summarized in the table below.
|
($ in millions, except
share amounts)
|
Q2 2023
|
Q1 2023
|
Variance
|
|
Average
Balances
|
(unaudited)
|
(unaudited)
|
|
|
Average earning assets
(at amortized cost)
|
$5,285.8
|
$5,245.3
|
$40.5
|
|
Average
borrowings
|
$4,791.7
|
$4,737.5
|
$54.2
|
|
Average stockholders'
equity (1)
|
$833.5
|
$847.5
|
($14.0)
|
|
|
|
|
|
U.S. GAAP Financial
Measures
|
|
|
|
|
Total interest
income
|
$71.4
|
$69.3
|
$2.1
|
|
Total interest
expense
|
$59.0
|
$49.7
|
$9.3
|
|
Net interest
income
|
$12.4
|
$19.6
|
($7.2)
|
|
Total
expenses
|
$5.1
|
$5.1
|
$0.0
|
|
Net income (loss)
attributable to common stockholders
|
($1.4)
|
$15.6
|
($17.0)
|
|
|
|
|
|
Average earning asset
yields
|
5.41 %
|
5.28 %
|
0.13 %
|
|
Average cost of
funds
|
4.93 %
|
4.20 %
|
0.73 %
|
|
Average net interest
rate margin
|
0.48 %
|
1.08 %
|
(0.60) %
|
|
|
|
|
|
Period-end weighted
average asset yields (2)
|
5.24 %
|
5.24 %
|
0.00 %
|
|
Period-end weighted
average cost of funds
|
5.21 %
|
4.91 %
|
0.30 %
|
|
Period-end weighted
average net interest rate margin
|
0.03 %
|
0.33 %
|
(0.30) %
|
|
|
|
|
|
Book value per common
share (3)
|
$11.98
|
$12.61
|
($0.63)
|
|
Earnings (loss) per
common share (basic)
|
($0.03)
|
$0.39
|
($0.42)
|
|
Earnings (loss) per
common share (diluted)
|
($0.03)
|
$0.39
|
($0.42)
|
|
Debt-to-equity
ratio
|
5.9x
|
5.8x
|
0.1x
|
|
|
|
|
|
Non-GAAP Financial
Measures (4)
|
|
|
|
|
Earnings available for
distribution
|
$61.5
|
$59.3
|
$2.2
|
|
Effective interest
expense
|
($1.2)
|
($0.2)
|
($1.0)
|
|
Effective net interest
income
|
$72.6
|
$69.5
|
$3.1
|
|
|
|
|
|
Effective cost of
funds
|
(0.10) %
|
(0.02) %
|
(0.08) %
|
|
Effective interest rate
margin
|
5.51 %
|
5.30 %
|
0.21 %
|
|
|
|
|
|
Earnings available for
distribution per common share
|
$1.45
|
$1.50
|
($0.05)
|
|
Economic debt-to-equity
ratio
|
5.9x
|
5.8x
|
0.1x
|
|
|
(1) Average
stockholders' equity is calculated based on the weighted month-end
balance of total stockholders' equity excluding equity attributable
to preferred stockholders.
|
|
(2) Period-end weighted
average asset yields are based on amortized cost as of period-end
and incorporate future prepayment and loss assumptions when
appropriate.
|
|
(3) Book value per
common share is calculated as total stockholders' equity less the
liquidation preference of the Company's Series B Preferred Stock
and Series C Preferred Stock ($112.5 million and $194.3 million as
of June 30, 2023, respectively, and $113.4 million and $195.4
million as of March 31, 2023, respectively), divided by total
common shares outstanding.
|
|
(4) Earnings available
for distribution (and by calculation, earnings available for
distribution per common share), effective interest expense (and by
calculation, effective cost of funds), effective net interest
income (and by calculation, effective interest rate margin), and
economic debt-to-equity ratio are non-GAAP financial measures.
Refer to the section entitled "Non-GAAP Financial Measures" for
important disclosures and a reconciliation to the most comparable
U.S. GAAP measures of net income (loss) attributable to common
stockholders (and by calculation, basic earnings (loss) per common
share), total interest expense (and by calculation, cost of funds),
net interest income (and by calculation, net interest rate margin)
and debt-to-equity ratio.
|
Financial Summary
Net loss attributable to common stockholders for the second
quarter of 2023 was $1.4 million
compared to net income attributable to common stockholders of
$15.6 million for the first quarter
of 2023. The change in net income (loss) attributable to common
stockholders was primarily driven by a $99.7
million net loss on investments in the second quarter
compared to a $52.0 million net gain
on investments in the first quarter and $12.4 million of net interest income in the
second quarter compared to $19.6
million in the first quarter, which was partially offset by
a $96.6 million net gain on
derivatives in the second quarter compared to a $44.9 million net loss on derivatives in the
first quarter.
Earnings available for distribution increased to $61.5 million for the second quarter of 2023
compared to $59.3 million for the
first quarter of 2023 primarily due to a $3.1 million increase in effective net interest
income. The increase in effective net interest income was primarily
driven by a $9.0 million increase in
contractual net interest income on interest rate swaps that was
partially offset by a $7.2 million
decrease in net interest income.
Book value per common share decreased 5.0% during the second
quarter of 2023 to $11.98 as higher
interest rates and elevated interest rate volatility pressured
valuations lower on higher coupon Agency RMBS and led to a decline
in premiums on the Company's specified pool holdings. Book value is
estimated to be between $11.61 and
$12.09 per common share as of
July 31, 2023.(1)
Total average earning assets and total average borrowings were
relatively unchanged in the second quarter of 2023 compared to the
first quarter of 2023 with average earning assets increasing
$40.5 million to $5.3 billion and average borrowings increasing
$54.2 million to $4.8 billion.
Average net interest rate margin decreased 60 basis points to
0.48% in the second quarter of 2023 compared to the first quarter
of 2023. Average earning asset yields increased 13 basis points to
5.41% in the second quarter compared to the first quarter primarily
due to an increase in net discount accretion on the Company's
Agency RMBS given faster prepayment speeds during the quarter.
Average cost of funds increased 73 basis points to 4.93% in the
second quarter compared to the first quarter reflecting increases
in the Federal Funds target interest rate. Effective interest rate
margin, which includes the impact of contractual net interest
income on the Company's interest rate swaps and excludes the impact
of amortization of net deferred gains on de-designated interest
rate swaps, increased by 21 basis points to 5.51% in the second
quarter compared to the first quarter.
The Company's debt-to-equity ratio and economic debt-to-equity
ratio were 5.9x as of June 30, 2023 compared to 5.8x as of
March 31, 2023, reflecting the decline in asset
valuations.
Total expenses for the second and first quarter of 2023,
consisting of management fees and general and administrative
expenses, were approximately $5.1
million. The ratio of annualized total expenses to average
stockholders' equity(2) increased to 2.46% in the second
quarter from 2.39% in the first quarter primarily due to a lower
average stockholders' equity base.
The Company sold 2.9 million shares of common stock for net
proceeds of $31.0 million during the
second quarter through its at-the-market program.
As previously announced on June 21,
2023, the Company declared a common stock dividend of
$0.40 per share paid on July 27, 2023 to its stockholders of record as of
July 3, 2023. The Company declared
the following dividends on August 2,
2023: a Series B Preferred Stock dividend of $0.4844 per share and a Series C Preferred Stock
dividend of $0.46875 per share
payable on September 27, 2023 to its
stockholders of record on September 5,
2023.
|
(1) Book value per
common share is adjusted to exclude a pro rata portion of the
current quarter's common stock dividend (which for purposes of this
calculation is assumed to be the same as the previous quarter) and
is calculated as total equity less the liquidation preference of
Series B Preferred Stock ($112.1 million) and Series C Preferred
Stock ($193.1 million), divided by total common shares outstanding
of 44.6 million as of July 31, 2023.
|
|
(2) The ratio of
annualized total expenses to average stockholders' equity is
calculated as the annualized sum of management fees plus general
and administrative expenses divided by average stockholders'
equity.
|
About Invesco Mortgage Capital Inc.
Invesco Mortgage Capital Inc. is a real estate investment trust
that primarily focuses on investing in, financing and managing
mortgage-backed securities and other mortgage-related assets.
Invesco Mortgage Capital Inc. is externally managed and advised by
Invesco Advisers, Inc., a registered investment adviser and an
indirect wholly-owned subsidiary of Invesco Ltd., a leading
independent global investment management firm.
Earnings Call
Members of the investment community and the general public are
invited to listen to the Company's earnings conference call on
Friday, August 4, 2023, at
9:00 a.m. ET, by calling one of the
following numbers:
North America Toll Free: 888-982-7409
International:
1-212-287-1625
Passcode:
Invesco
An audio replay will be available until 5:00 pm ET on August 18,
2023 by calling:
800-839-1174 (North America) or
1-203-369-3029 (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, the related presentation 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 as defined in the Private
Securities Litigation Reform Act of 1995, and such statements are
intended to be covered by the safe harbor provided by the same.
Forward-looking statements include our views on the risk
positioning of our portfolio, domestic and global market conditions
(including the Agency RMBS and residential and commercial real
estate market), the market for our target assets, our financial
performance, including our earnings available for distribution,
economic return, comprehensive income and changes in our book
value, our intention and ability to pay dividends, our ability to
continue performance trends, the stability of portfolio yields,
interest rates, credit spreads, prepayment trends, financing
sources, cost of funds, our leverage and equity allocation. In
addition, words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "projects," "forecasts," and
future or conditional verbs such as "will," "may," "could,"
"should," and "would" 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 you 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
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in thousands,
except share data
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
other securities
|
71,428
|
|
69,287
|
|
43,994
|
|
140,715
|
|
85,631
|
|
Commercial
loan
|
—
|
|
—
|
|
561
|
|
—
|
|
1,098
|
|
Total interest
income
|
71,428
|
|
69,287
|
|
44,555
|
|
140,715
|
|
86,729
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
59,022
|
|
49,726
|
|
3,455
|
|
108,748
|
|
1,351
|
|
Total interest
expense
|
59,022
|
|
49,726
|
|
3,455
|
|
108,748
|
|
1,351
|
|
Net interest
income
|
12,406
|
|
19,561
|
|
41,100
|
|
31,967
|
|
85,378
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(loss)
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
investments, net
|
(99,679)
|
|
51,956
|
|
(324,876)
|
|
(47,723)
|
|
(829,264)
|
|
(Increase) decrease in
provision for credit losses
|
(169)
|
|
—
|
|
—
|
|
(169)
|
|
—
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
—
|
|
2
|
|
(352)
|
|
2
|
|
(281)
|
|
Gain (loss) on
derivative instruments, net
|
96,624
|
|
(44,895)
|
|
181,742
|
|
51,729
|
|
420,602
|
|
Other investment income
(loss), net
|
27
|
|
(93)
|
|
(11)
|
|
(66)
|
|
44
|
|
Total other income
(loss)
|
(3,197)
|
|
6,970
|
|
(143,497)
|
|
3,773
|
|
(408,899)
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Management fee –
related party
|
3,168
|
|
2,979
|
|
4,619
|
|
6,147
|
|
9,893
|
|
General and
administrative
|
1,963
|
|
2,089
|
|
2,519
|
|
4,052
|
|
4,543
|
|
Total
expenses
|
5,131
|
|
5,068
|
|
7,138
|
|
10,199
|
|
14,436
|
|
Net income
(loss)
|
4,078
|
|
21,463
|
|
(109,535)
|
|
25,541
|
|
(337,957)
|
|
Dividends to preferred
stockholders
|
(5,840)
|
|
(5,862)
|
|
(8,100)
|
|
(11,702)
|
|
(16,494)
|
|
Gain on repurchase and
retirement of preferred stock
|
364
|
|
—
|
|
1,491
|
|
364
|
|
1,491
|
|
Net income (loss)
attributable to common stockholders
|
(1,398)
|
|
15,601
|
|
(116,144)
|
|
14,203
|
|
(352,960)
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
(0.03)
|
|
0.39
|
|
(3.52)
|
|
0.35
|
|
(10.70)
|
|
Diluted
|
(0.03)
|
|
0.39
|
|
(3.52)
|
|
0.35
|
|
(10.70)
|
|
INVESCO MORTGAGE CAPITAL INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Net income
(loss)
|
4,078
|
|
21,463
|
|
(109,535)
|
|
25,541
|
|
(337,957)
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
on mortgage-backed securities, net
|
(131)
|
|
(476)
|
|
(1,825)
|
|
(607)
|
|
(4,246)
|
|
Reclassification of
unrealized loss on available-for-sale securities to (increase)
decrease in provision for credit losses
|
169
|
|
—
|
|
—
|
|
169
|
|
—
|
|
Reclassification of
amortization of net deferred (gain) loss on de-designated interest
rate swaps to repurchase agreements interest expense
|
(3,201)
|
|
(4,494)
|
|
(4,802)
|
|
(7,695)
|
|
(9,998)
|
|
Currency translation
adjustments on investment in unconsolidated venture
|
—
|
|
(10)
|
|
(93)
|
|
(10)
|
|
(293)
|
|
Reclassification of
currency translation loss on investment in unconsolidated venture
to other investment income (loss), net
|
—
|
|
123
|
|
—
|
|
123
|
|
—
|
|
Total other
comprehensive income (loss)
|
(3,163)
|
|
(4,857)
|
|
(6,720)
|
|
(8,020)
|
|
(14,537)
|
|
Comprehensive income
(loss)
|
915
|
|
16,606
|
|
(116,255)
|
|
17,521
|
|
(352,494)
|
|
Dividends to preferred
stockholders
|
(5,840)
|
|
(5,862)
|
|
(8,100)
|
|
(11,702)
|
|
(16,494)
|
|
Gain on repurchase and
retirement of preferred stock
|
364
|
|
—
|
|
1,491
|
|
364
|
|
1,491
|
|
Comprehensive income
(loss) attributable to common stockholders
|
(4,561)
|
|
10,744
|
|
(122,864)
|
|
6,183
|
|
(367,497)
|
|
INVESCO MORTGAGE CAPITAL INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
As of
|
|
$ in thousands,
except share amounts
|
June 30,
2023
|
|
December 31,
2022
|
|
ASSETS
|
|
|
|
|
Mortgage-backed
securities, at fair value (including pledged securities of
$5,224,675 and $4,439,583, respectively; net of allowance for
credit losses of $169 and $0, respectively)
|
5,507,460
|
|
4,791,893
|
|
Cash and cash
equivalents
|
209,036
|
|
175,535
|
|
Restricted
cash
|
124,669
|
|
103,246
|
|
Due from
counterparties
|
—
|
|
1,584
|
|
Investment related
receivable
|
23,809
|
|
22,744
|
|
Derivative assets, at
fair value
|
—
|
|
662
|
|
Other assets
|
1,255
|
|
1,731
|
|
Total
assets
|
5,866,229
|
|
5,097,395
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Repurchase
agreements
|
4,959,388
|
|
4,234,823
|
|
Derivative liabilities,
at fair value
|
2,635
|
|
2,079
|
|
Dividends
payable
|
17,832
|
|
25,162
|
|
Accrued interest
payable
|
40,159
|
|
20,546
|
|
Collateral held
payable
|
—
|
|
4,892
|
|
Accounts payable and
accrued expenses
|
1,779
|
|
1,365
|
|
Due to
affiliate
|
3,552
|
|
4,453
|
|
Total
liabilities
|
5,025,345
|
|
4,293,320
|
|
Commitments and
contingencies (See Note 14) (1)
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
Preferred Stock, par
value $0.01 per share; 50,000,000 shares authorized:
|
|
|
|
|
7.75%
Fixed-to-Floating Series B Cumulative
Redeemable Preferred Stock: 4,499,846 and 4,537,634 shares issued
and outstanding, respectively ($112,496 and $113,441 aggregate
liquidation preference, respectively)
|
108,766
|
|
109,679
|
|
7.50%
Fixed-to-Floating Series C Cumulative
Redeemable Preferred Stock: 7,773,774 and 7,816,470 shares issued
and outstanding, respectively ($194,344 and $195,412 aggregate
liquidation preference, respectively)
|
187,995
|
|
189,028
|
|
Common Stock, par value
$0.01 per share; 67,000,000 shares authorized; 44,579,863 and
38,710,916 shares issued and outstanding, respectively
|
445
|
|
387
|
|
Additional paid in
capital
|
3,968,567
|
|
3,901,562
|
|
Accumulated other
comprehensive income
|
2,741
|
|
10,761
|
|
Retained earnings
(distributions in excess of earnings)
|
(3,427,630)
|
|
(3,407,342)
|
|
Total stockholders'
equity
|
840,884
|
|
804,075
|
|
Total liabilities and
stockholders' equity
|
5,866,229
|
|
5,097,395
|
|
|
|
(1)
|
See Note 14 of the
Company's condensed consolidated financial statements filed in Item
1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2023.
|
Non-GAAP Financial Measures
The table below shows the non-GAAP financial measures the
Company uses to analyze its operating results and the most directly
comparable U.S. GAAP measures. The Company believes these non-GAAP
measures are useful to investors in assessing its performance as
discussed further below.
|
Non-GAAP Financial
Measure
|
|
Most Directly
Comparable U.S. GAAP Measure
|
|
Earnings available for
distribution (and by calculation, earnings available for
distribution per common share)
|
|
Net income (loss)
attributable to common stockholders (and by calculation, basic
earnings (loss) per common share)
|
|
Effective interest
expense (and by calculation, effective cost of funds)
|
|
Total interest expense
(and by calculation, cost of funds)
|
|
Effective net interest
income (and by calculation, effective interest rate
margin)
|
|
Net interest income
(and by calculation, net interest rate margin)
|
|
Economic debt-to-equity
ratio
|
|
Debt-to-equity
ratio
|
The non-GAAP financial measures used by the Company's management
should be analyzed in conjunction with U.S. GAAP financial measures
and should not be considered substitutes for U.S. GAAP financial
measures. In addition, the non-GAAP financial measures may not be
comparable to similarly titled non-GAAP financial measures of its
peer companies.
Earnings Available for Distribution
The Company's business objective is to provide attractive
risk-adjusted returns to its stockholders, primarily through
dividends and secondarily through capital appreciation. The Company
uses earnings available for distribution as a measure of its
investment portfolio's ability to generate income for distribution
to common stockholders and to evaluate its progress toward meeting
this objective. The Company calculates earnings available for
distribution as U.S. GAAP net income (loss) attributable to common
stockholders adjusted for (gain) loss on investments, net; realized
(gain) loss on derivative instruments, net; unrealized (gain) loss
on derivative instruments, net; TBA dollar roll income; gain on
repurchase and retirement of preferred stock; foreign currency
gains (losses), net and amortization of net deferred (gain) loss on
de-designated interest rate swaps.
By excluding the gains and losses discussed above, the Company
believes the presentation of earnings available for distribution
provides a consistent measure of operating performance that
investors can use to evaluate its results over multiple reporting
periods and, to a certain extent, compare to its peer companies.
However, because not all of the Company's peer companies use
identical operating performance measures, the Company's
presentation of earnings available for distribution may not be
comparable to other similarly titled measures used by its peer
companies. The Company excludes the impact of gains and losses when
calculating earnings available for distribution because (i) when
analyzed in conjunction with its U.S. GAAP results, earnings
available for distribution provides additional detail of its
investment portfolio's earnings capacity and (ii) gains and losses
are not accounted for consistently under U.S. GAAP. Under U.S.
GAAP, certain gains and losses are reflected in net income whereas
other gains and losses are reflected in other comprehensive income.
For example, a portion of the Company's mortgage-backed securities
are classified as available-for-sale securities, and changes in the
valuation of these securities are recorded in other comprehensive
income on its condensed consolidated balance sheets. The Company
elected the fair value option for its mortgage-backed securities
purchased on or after September 1,
2016, and changes in the valuation of these securities are
recorded in other income (loss) in the condensed consolidated
statements of operations. In addition, certain gains and losses
represent one-time events. The Company may add and has added
additional reconciling items to its earnings available for
distribution calculation as appropriate.
To maintain qualification as a REIT, U.S. federal income tax law
generally requires that the Company distribute at least 90% of its
REIT taxable income annually, determined without regard to the
deduction for dividends paid and excluding net capital gains. The
Company has historically distributed at least 100% of its REIT
taxable income. Because the Company views earnings available for
distribution as a consistent measure of its investment portfolio's
ability to generate income for distribution to common stockholders,
earnings available for distribution is one metric, but not the
exclusive metric, that the Company's board of directors uses to
determine the amount, if any, and the payment date of dividends on
common stock. However, earnings available for distribution should
not be considered as an indication of the Company's taxable income,
a guaranty of its ability to pay dividends or as a proxy for the
amount of dividends it may pay, as earnings available for
distribution excludes certain items that impact its cash needs.
Earnings available for distribution is an incomplete measure of
the Company's financial performance and there are other factors
that impact the achievement of the Company's business objective.
The Company cautions that earnings available for distribution
should not be considered as an alternative to net income
(determined in accordance with U.S. GAAP) or as an indication of
the Company's cash flow from operating activities (determined in
accordance with U.S. GAAP), a measure of the Company's liquidity or
as an indication of amounts available to fund its cash needs.
The table below provides a reconciliation of U.S. GAAP net
income (loss) attributable to common stockholders to earnings
available for distribution for the following periods:
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in thousands,
except per share data
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Net income (loss)
attributable to common stockholders
|
(1,398)
|
|
15,601
|
|
(116,144)
|
|
14,203
|
|
(352,960)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on
investments, net
|
99,679
|
|
(51,956)
|
|
324,876
|
|
47,723
|
|
829,264
|
|
Realized (gain) loss on
derivative instruments, net (1)
|
(26,946)
|
|
91,900
|
|
(141,232)
|
|
64,954
|
|
(424,661)
|
|
Unrealized (gain) loss
on derivative instruments, net (1)
|
(6,241)
|
|
7,459
|
|
(26,944)
|
|
1,218
|
|
18,909
|
|
TBA dollar roll income
(2)
|
—
|
|
697
|
|
11,855
|
|
697
|
|
25,256
|
|
Gain on repurchase and
retirement of preferred stock
|
(364)
|
|
—
|
|
(1,491)
|
|
(364)
|
|
(1,491)
|
|
Foreign currency
(gains) losses, net (3)
|
(27)
|
|
93
|
|
11
|
|
66
|
|
(44)
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate swaps
(4)
|
(3,201)
|
|
(4,494)
|
|
(4,802)
|
|
(7,695)
|
|
(9,998)
|
|
Subtotal
|
62,900
|
|
43,699
|
|
162,273
|
|
106,599
|
|
437,235
|
|
Earnings available for
distribution
|
61,502
|
|
59,300
|
|
46,129
|
|
120,802
|
|
84,275
|
|
Basic income (loss) per
common share
|
(0.03)
|
|
0.39
|
|
(3.52)
|
|
0.35
|
|
(10.70)
|
|
Earnings available for
distribution per common share (5)
|
1.45
|
|
1.50
|
|
1.40
|
|
2.95
|
|
2.55
|
|
|
|
(1)
|
U.S. GAAP gain (loss)
on derivative instruments, net on the condensed consolidated
statements of operations includes the following
components:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Realized gain (loss) on
derivative instruments, net
|
26,946
|
|
(91,900)
|
|
141,232
|
|
(64,954)
|
|
424,661
|
|
Unrealized gain (loss)
on derivative instruments, net
|
6,241
|
|
(7,459)
|
|
26,944
|
|
(1,218)
|
|
(18,909)
|
|
Contractual net
interest income (expense) on interest rate swaps
|
63,437
|
|
54,464
|
|
13,566
|
|
117,901
|
|
14,850
|
|
Gain (loss) on
derivative instruments, net
|
96,624
|
|
(44,895)
|
|
181,742
|
|
51,729
|
|
420,602
|
|
|
|
(2)
|
A TBA dollar roll is a
series of derivative transactions where TBAs with the same
specified issuer, term and coupon but different settlement dates
are simultaneously bought and sold. The TBA settling in the later
month typically prices at a discount to the TBA settling in the
earlier month. TBA dollar roll income represents the price
differential between the TBA price for current month settlement
versus the TBA price for forward month settlement. The Company
includes TBA dollar roll income in earnings available for
distribution because it is the economic equivalent of interest
income on the underlying Agency RMBS, less an implied financing
cost, over the forward settlement period. TBA dollar roll income is
a component of gain (loss) on derivative instruments, net on the
Company's condensed consolidated statements of
operations.
|
|
(3)
|
Foreign currency gains
(losses), net includes foreign currency transaction gains and
losses and the reclassification of currency translation adjustments
that were previously recorded in accumulated other comprehensive
income and is included in other investment income (loss), net on
the condensed consolidated statements of operations.
|
|
(4)
|
U.S. GAAP repurchase
agreements interest expense on the condensed consolidated
statements of operations includes the following
components:
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Interest expense on
repurchase agreement borrowings
|
62,223
|
|
54,220
|
|
8,257
|
|
116,443
|
|
11,349
|
|
Amortization of net
deferred (gain) loss on de-designated interest rate
swaps
|
(3,201)
|
|
(4,494)
|
|
(4,802)
|
|
(7,695)
|
|
(9,998)
|
|
Repurchase agreements
interest expense
|
59,022
|
|
49,726
|
|
3,455
|
|
108,748
|
|
1,351
|
|
|
|
(5)
|
Earnings available for
distribution per common share is equal to earnings available for
distribution divided by the basic weighted average number of common
shares outstanding.
|
The table below shows the components of earnings available for
distribution for the following periods:
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Effective net interest
income (1)
|
72,642
|
|
69,531
|
|
49,864
|
|
142,173
|
|
90,230
|
|
TBA dollar roll
income
|
—
|
|
697
|
|
11,855
|
|
697
|
|
25,256
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
—
|
|
2
|
|
(352)
|
|
2
|
|
(281)
|
|
(Increase) decrease in
provision for credit losses
|
(169)
|
|
—
|
|
—
|
|
(169)
|
|
—
|
|
Total
expenses
|
(5,131)
|
|
(5,068)
|
|
(7,138)
|
|
(10,199)
|
|
(14,436)
|
|
Subtotal
|
67,342
|
|
65,162
|
|
54,229
|
|
132,504
|
|
100,769
|
|
Dividends to preferred
stockholders
|
(5,840)
|
|
(5,862)
|
|
(8,100)
|
|
(11,702)
|
|
(16,494)
|
|
Earnings available for
distribution
|
61,502
|
|
59,300
|
|
46,129
|
|
120,802
|
|
84,275
|
|
|
|
(1)
|
See below for a
reconciliation of net interest income to effective net interest
income, a non-GAAP measure.
|
Effective Interest Expense/Effective Cost of Funds/Effective
Net Interest Income/Effective Interest Rate Margin
The Company calculates effective interest expense (and by
calculation, effective cost of funds) as U.S. GAAP total interest
expense adjusted for contractual net interest income (expense) on
its interest rate swaps that is recorded as gain (loss) on
derivative instruments, net and the amortization of net deferred
gains (losses) on de-designated interest rate swaps that is
recorded as repurchase agreements interest expense. The Company
views its interest rate swaps as an economic hedge against
increases in future market interest rates on its borrowings. The
Company adds back the net payments or receipts on its interest rate
swap agreements to its total U.S. GAAP interest expense because the
Company uses interest rate swaps to add stability to interest
expense. The Company excludes the amortization of net deferred
gains (losses) on de-designated interest rate swaps from its
calculation of effective interest expense because the Company does
not consider the amortization a current component of its borrowing
costs.
The Company calculates effective net interest income (and by
calculation, effective interest rate margin) as U.S. GAAP net
interest income adjusted for contractual net interest income
(expense) on its interest rate swaps that is recorded as gain
(loss) on derivative instruments, net and amortization of net
deferred gains (losses) on de-designated interest rate swaps that
is recorded as repurchase agreements interest expense.
The Company believes the presentation of effective interest
expense, effective cost of funds, effective net interest income and
effective interest rate margin measures, when considered together
with U.S. GAAP financial measures, provides information that is
useful to investors in understanding the Company's borrowing costs
and operating performance.
The following table reconciles total interest expense to
effective interest expense and cost of funds to effective cost of
funds for the following periods:
|
Three Months
Ended
|
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Total interest
expense
|
59,022
|
|
4.93 %
|
|
49,726
|
|
4.20 %
|
|
3,455
|
|
0.34 %
|
|
Add: Amortization of
net deferred gain (loss) on de-designated interest rate
swaps
|
3,201
|
|
0.27 %
|
|
4,494
|
|
0.38 %
|
|
4,802
|
|
0.47 %
|
|
Less: Contractual net
interest expense (income) on interest rate swaps recorded as gain
(loss) on derivative instruments, net
|
(63,437)
|
|
(5.30) %
|
|
(54,464)
|
|
(4.60) %
|
|
(13,566)
|
|
(1.34) %
|
|
Effective interest
expense
|
(1,214)
|
|
(0.10) %
|
|
(244)
|
|
(0.02) %
|
|
(5,309)
|
|
(0.53) %
|
|
Six Months Ended
June 30,
|
|
2023
|
|
2022
|
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Total interest
expense
|
108,748
|
|
4.56 %
|
|
1,351
|
|
0.05 %
|
|
Add: Amortization of
net deferred gain (loss) on de-designated interest rate
swaps
|
7,695
|
|
0.32 %
|
|
9,998
|
|
0.39 %
|
|
Less: Contractual net
interest expense (income) on interest rate swaps recorded as gain
(loss) on derivative instruments, net
|
(117,901)
|
|
(4.95) %
|
|
(14,850)
|
|
(0.58) %
|
|
Effective interest
expense
|
(1,458)
|
|
(0.07) %
|
|
(3,501)
|
|
(0.14) %
|
The following table reconciles net interest income to effective
net interest income and net interest rate margin to effective
interest rate margin for the following periods:
|
Three Months
Ended
|
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
$ in
thousands
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Net interest
income
|
12,406
|
|
0.48 %
|
|
19,561
|
|
1.08 %
|
|
41,100
|
|
3.48 %
|
|
Less: Amortization of
net deferred (gain) loss on de-designated interest rate
swaps
|
(3,201)
|
|
(0.27) %
|
|
(4,494)
|
|
(0.38) %
|
|
(4,802)
|
|
(0.47) %
|
|
Add: Contractual net
interest income (expense) on interest rate swaps recorded as gain
(loss) on derivative instruments, net
|
63,437
|
|
5.30 %
|
|
54,464
|
|
4.60 %
|
|
13,566
|
|
1.34 %
|
|
Effective net interest
income
|
72,642
|
|
5.51 %
|
|
69,531
|
|
5.30 %
|
|
49,864
|
|
4.35 %
|
|
|
Six Months Ended
June 30,
|
|
|
2023
|
|
2022
|
|
$ in
thousands
|
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Net interest
income
|
|
31,967
|
|
0.78 %
|
|
85,378
|
|
2.93 %
|
|
Less: Amortization of
net deferred (gain) loss on de-designated interest rate
swaps
|
|
(7,695)
|
|
(0.32) %
|
|
(9,998)
|
|
(0.39) %
|
|
Add: Contractual net
interest income (expense) on interest rate swaps recorded as gain
(loss) on derivative instruments, net
|
|
117,901
|
|
4.95 %
|
|
14,850
|
|
0.58 %
|
|
Effective net interest
income
|
|
142,173
|
|
5.41 %
|
|
90,230
|
|
3.12 %
|
Economic Debt-to-Equity Ratio
The following tables show the allocation of the Company's
stockholders' equity to its target assets, the Company's
debt-to-equity ratio, and the Company's economic debt-to-equity
ratio as of June 30, 2023 and March 31, 2023. The
Company's debt-to-equity ratio is calculated in accordance with
U.S. GAAP and is the ratio of total debt to total stockholders'
equity.
The Company presents an economic debt-to-equity ratio, a
non-GAAP financial measure of leverage that considers the impact of
the off-balance sheet financing of its investments in TBAs that are
accounted for as derivative instruments under U.S. GAAP. The
Company includes its TBAs at implied cost basis in its measure of
leverage because a forward contract to acquire Agency RMBS in the
TBA market carries similar risks to Agency RMBS purchased in the
cash market and funded with on-balance sheet liabilities.
Similarly, a contract for the forward sale of Agency RMBS has
substantially the same effect as selling the underlying Agency RMBS
and reducing the Company's on-balance sheet funding commitments.
The Company believes that presenting its economic debt-to-equity
ratio, when considered together with its U.S. GAAP financial
measure of debt-to-equity ratio, provides information that is
useful to investors in understanding how management evaluates
at-risk leverage and gives investors a comparable statistic to
those of other mortgage REITs who also invest in TBAs and present a
similar non-GAAP measure of leverage.
|
As of June 30,
2023
|
|
|
$ in
thousands
|
Agency
RMBS
|
Credit Portfolio
(1)
|
Total
|
|
Mortgage-backed
securities
|
5,462,474
|
44,986
|
5,507,460
|
|
Cash and cash
equivalents (2)
|
209,036
|
—
|
209,036
|
|
Restricted cash
(3)
|
124,669
|
—
|
124,669
|
|
Other assets
|
24,298
|
766
|
25,064
|
|
Total
assets
|
5,820,477
|
45,752
|
5,866,229
|
|
|
|
|
|
Repurchase
agreements
|
4,959,388
|
—
|
4,959,388
|
|
Derivative liabilities,
at fair value (3)
|
2,635
|
—
|
2,635
|
|
Other
liabilities
|
61,484
|
1,838
|
63,322
|
|
Total
liabilities
|
5,023,507
|
1,838
|
5,025,345
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
796,970
|
43,914
|
840,884
|
|
Debt-to-equity ratio
(4)
|
6.2
|
—
|
5.9
|
|
Economic debt-to-equity
ratio (5)
|
6.2
|
—
|
5.9
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, non-Agency RMBS and an unconsolidated joint
venture are included in credit portfolio.
|
|
(2)
|
Cash and cash
equivalents is allocated based on the Company's financing strategy
for each asset class.
|
|
(3)
|
Restricted cash and
derivative assets and liabilities are allocated based on the
hedging strategy for each asset class.
|
|
(4)
|
Debt-to-equity ratio is
calculated as the ratio of total repurchase agreements to total
stockholders' equity.
|
|
(5)
|
Economic debt-to-equity
ratio is calculated as the ratio of total repurchase agreements and
TBAs at implied cost basis to total stockholders' equity. The
Company did not have any TBAs outstanding as of June 30,
2023.
|
|
As of March 31,
2023
|
|
|
$ in
thousands
|
Agency
RMBS
|
Credit Portfolio
(1)
|
Total
|
|
Mortgage-backed
securities
|
5,402,200
|
44,943
|
5,447,143
|
|
Cash and cash
equivalents (2)
|
101,834
|
—
|
101,834
|
|
Restricted cash
(3)
|
127,038
|
—
|
127,038
|
|
Derivative assets, at
fair value (3)
|
3,416
|
—
|
3,416
|
|
Other assets
|
27,183
|
758
|
27,941
|
|
Total
assets
|
5,661,671
|
45,701
|
5,707,372
|
|
|
|
|
|
Repurchase
agreements
|
4,814,700
|
—
|
4,814,700
|
|
Derivative liabilities,
at fair value (3)
|
12,291
|
—
|
12,291
|
|
Other
liabilities
|
44,792
|
1,474
|
46,266
|
|
Total
liabilities
|
4,871,783
|
1,474
|
4,873,257
|
|
|
|
|
|
Total stockholders'
equity (allocated)
|
789,888
|
44,227
|
834,115
|
|
Debt-to-equity ratio
(4)
|
6.1
|
—
|
5.8
|
|
Economic debt-to-equity
ratio (5)
|
6.1
|
—
|
5.8
|
|
|
|
(1)
|
Investments in
non-Agency CMBS, non-Agency RMBS and an unconsolidated joint
venture are included in credit portfolio.
|
|
(2)
|
Cash and cash
equivalents is allocated based on the Company's financing strategy
for each asset class.
|
|
(3)
|
Restricted cash and
derivative assets and liabilities are allocated based on the
hedging strategy for each asset class.
|
|
(4)
|
Debt-to-equity ratio is
calculated as the ratio of total repurchase agreements to total
stockholders' equity.
|
|
(5)
|
Economic debt-to-equity
ratio is calculated as the ratio of total repurchase agreements and
TBAs at implied cost basis ($929,000 as of March 31, 2023) to
total stockholders' equity.
|
Average Balances
The table below presents information related to the Company's
average earning assets, average earning asset yields, average
borrowings and average cost of funds for the following periods:
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2023
|
|
March 31,
2023
|
|
June 30,
2022
|
|
June 30,
2023
|
|
June 30,
2022
|
|
Average earning assets
(1)
|
5,285,794
|
|
5,245,291
|
|
4,663,313
|
|
5,265,654
|
|
5,827,797
|
|
Average earning asset
yields (2)
|
5.41 %
|
|
5.28 %
|
|
3.82 %
|
|
5.34 %
|
|
2.98 %
|
|
|
|
|
|
|
|
|
|
|
|
Average borrowings
(3)
|
4,791,720
|
|
4,737,476
|
|
4,059,423
|
|
4,764,748
|
|
5,133,591
|
|
Average cost of funds
(4)
|
4.93 %
|
|
4.20 %
|
|
0.34 %
|
|
4.56 %
|
|
0.05 %
|
|
|
|
(1)
|
Average balances for
each period are based on weighted month-end balances.
|
|
(2)
|
Average earning asset
yields for each period are calculated by dividing interest income,
including amortization of premiums and discounts, by average
earning assets based on the amortized cost of the investments. All
yields are annualized.
|
|
(3)
|
Average borrowings for
each period are based on weighted month-end balances.
|
|
(4)
|
Average cost of funds
is calculated by dividing annualized interest expense, including
amortization of net deferred gain (loss) on de-designated interest
rate swaps, by average borrowings.
|
Greg Seals,
Investor
Relations
404-439-3323
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SOURCE Invesco Mortgage Capital Inc.