Invesco Mortgage Capital Inc.
02/23/2015 | Press release | Archived content
Invesco Mortgage Capital Inc. Reports Fourth Quarter 2014 Financial Results
ATLANTA, Feb. 23, 2015/PRNewswire/ --
Generated core earnings* of $59.7 million, or $0.49 per common share and delivered 2014 economic return** on book value of 15.6%
Highlights
- Economic return** for the year ended 2014 of 15.6% and 0.6% for Q4
- Q4 core earnings* of $59.7 million or $0.49 per common share and common stock dividend of $0.45 per share
- Q4 U.S. GAAP net loss attributable to common shareholders of $79.0 million or ($0.64) per share reflects change in valuation of interest rate hedges
- Book value per common share at year end 2014 of $18.82 vs. $17.97 at year end 2013 and $19.16 at Q3 2014
- Comprehensive income attributable to common shareholders of $14.7 million or $0.12 per common share for Q4 and $344.7 million or $2.80 per common share for the year ended 2014
- Portfolio equity allocation positioned to benefit from improving real estate fundamentals: 34% to commercial credit, 34% to residential credit and 32% to Agency MBS as of December 31, 2014
Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced financial results for the quarter ended December 31, 2014, including core earnings* of $0.49 per common share. The strong quarterly results were driven by both our asset and liability strategy. Higher earning assets had a positive effect on interest income and lower financing costs increased our effective interest rate margin* to 1.35% for the fourth quarter vs. 1.17% in the third quarter of 2014.
"Our value proposition is to deliver attractive investment income and book value stability to IVR stockholders," said Richard King, President and CEO. "During the year ended December 31, 2014, IVR declared $1.95 per common share of dividends and grew book value from $17.97 to $18.82 per share for a 15.6% economic return**. We also delivered on repositioning our portfolio to be less interest rate sensitive and to create greater value for IVR stockholders. The portfolio repositioning will align our future returns more closely to the strength of residential and commercial real estate fundamentals and reduce interest rate risk. We increased the percentage of equity allocated to commercial credit to 34% vs. 25% at December 31, 2013. Management believes the Company is positioned to deliver another year of attractive economic return in 2015."
* Core earnings (and by calculation, core earnings 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 repurchase agreement debt-to-equity ratio are non-Generally Accepted Accounting Principles ("GAAP") financial measures. Refer to the section entitled "Non-GAAP Financial Measures" below for important disclosures and a reconciliation to the most comparable U.S. GAAP measures of net income (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 total debt-to-equity ratio.
**Economic return for the year ended December 31, 2014 is defined as the change in book value per diluted common share from December 31, 2013 to December 31, 2014 of $0.85; plus dividends declared of $1.95 per common share; divided by the December 31, 2013 book value per diluted common share of $17.97. Economic return for the quarter ended December 31, 2014 is defined as the change in book value per diluted common share from September 30, 2014 to December 31, 2014 of ($0.34); plus dividends declared of $0.45 per common share; divided by the September 30, 2014 book value per diluted common share of $19.16.
Key performance indicators for the quarters ended December 31, 2014 and September 30, 2014 are summarized in the table below.
|
($ in millions, except share amounts) |
Q4 '14 |
Q3 '14 |
||
|
|
(unaudited) |
(unaudited) |
||
|
Average earning assets (at amortized cost) |
$20,282.7 |
|
$19,599.3 |
|
|
Average borrowed funds |
17,985.4 |
|
17,350.8 |
|
|
Average equity |
$2,407.4 |
|
$2,449.6 |
|
|
|
|
|
|
|
|
Interest income |
$179.0 |
|
$169.4 |
|
|
Interest expense |
73.6 |
|
70.3 |
|
|
Net interest income |
105.4 |
|
99.1 |
|
|
Total other income (loss) |
(162.8) |
|
(51.6) |
|
|
Operating expenses |
14.0 |
|
13.3 |
|
|
Net income (loss) |
(71.2) |
|
34.4 |
|
|
Net income (loss) attributable to non-controlling interest |
(0.8) |
|
0.4 |
|
|
Dividends to preferred shareholders |
8.6 |
|
3.4 |
|
|
Net income (loss) attributable to common shareholders |
($79.0) |
|
$30.7 |
|
|
|
|
|
|
|
|
Average portfolio yield |
3.53 |
% |
3.46 |
% |
|
Cost of funds |
1.64 |
% |
1.62 |
% |
|
Total debt-to-equity ratio |
6.9x |
|
6.7x |
|
|
Book value per common share (diluted) |
$18.82 |
|
$19.16 |
|
|
Earnings (loss) per common share (basic) |
($0.64) |
|
$0.25 |
|
|
Dividends declared per common share |
$0.45 |
|
$0.50 |
|
|
Dividends declared per preferred share on Series A Preferred Stock |
$0.4844 |
|
$0.4844 |
|
|
Dividends declared per preferred share on Series B Preferred Stock |
$1.0549 |
|
- |
|
|
|
|
|
|
|
|
Non-GAAP Financial Measures*: |
|
|
|
|
|
Core earnings |
$59.7 |
|
$54.3 |
|
|
Core earnings per common share |
$0.49 |
|
$0.44 |
|
|
Effective interest expense |
$98.2 |
|
$99.5 |
|
|
Effective cost of funds |
2.18 |
% |
2.29 |
% |
|
Effective net interest income |
$80.9 |
|
$69.9 |
|
|
Effective interest rate margin |
1.35 |
% |
1.17 |
% |
|
Repurchase agreement debt-to-equity ratio |
5.4x |
|
5.2x |
|
* Core earnings (and by calculation, core earnings 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 repurchase agreement debt-to-equity ratio are non-Generally Accepted Accounting Principles ("GAAP") financial measures. Refer to the section entitled "Non-GAAP Financial Measures" below for important disclosures and a reconciliation to the most comparable U.S. GAAP measures of net income (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 total debt-to-equity ratio.
Financial Summary
During the fourth quarter of 2014, the Company generated $59.7 million in core earnings, an increase of $5.4 million over the third quarter of 2014. Net loss attributable to common shareholders for the fourth quarter of 2014 was $79.0 million, compared to net income attributable to common shareholders of $30.7 million for the third quarter of 2014. The fourth quarter 2014 net loss attributable to common shareholders was primarily due to a $164.6 million decline in the valuation of interest rate swaps during the quarter. Fourth quarter 2014 book value per common share was $18.82 reflecting modestly wider credit spreads on commercial mortgage-backed securities ("CMBS") and lower prices on credit risk transfer securities issued by government-sponsored enterprises ("GSE CRTs").
During the quarter the Company added one residential loan securitization, several securities backed by re-performing sub-prime residential loans, and additional GSE CRTs to its investment portfolio. As of December 31, 2014, the Company increased its portfolio of residential and commercial loans held for investment to $3.5 billion, an increase of $262.6 million from September 30, 2014. The Company's mortgage-backed securities ("MBS") portfolio totaled $17.2 billion, a decrease of $48.1 million from September 30, 2014. For the quarter ended December 31, 2014, average earning assets were $20.3 billion, representing an increase of $683.4 million from September 30, 2014. The portfolio generated interest income of $179.0 million during the three months ended December 31, 2014, which reflects an increase of $9.6 million from the three months ended September 30, 2014. The increase in interest income was the result of higher average earning assets during the quarter.
For the quarter ended December 31, 2014, the Company had average borrowed funds of approximately $18.0 billion and effective interest expense of $98.2 million, compared to $17.4 billion and $99.5 million, respectively, for the third quarter of 2014. The Company's effective cost of funds was 2.18% and 2.29% for the fourth quarter and third quarter of 2014, respectively. The decrease in effective interest expense and effective cost of funds was primarily the result of lower interest rate swap notional balances. The Company terminated shorter swaps that we believe offered minimal protection against interest rate movements. Given our shift to credit based assets and reduction in the interest rate sensitivity of our investment portfolio, the Company also terminated certain longer term swaps to adjust our overall interest rate duration.
Operating expenses for the fourth quarter of 2014 totaled approximately $14.0 million, compared to $13.3 million for the third quarter of 2014. The ratio of operating expenses to average equity for the fourth quarter was 2.32%, which was an increase of 15 basis points from the third quarter of 2014. The increase in operating expenses was primarily due to organization and direct operating expenses associated with new investments in consolidated residential loan securitizations.
In the fourth quarter of 2014, the Company declared the following dividends: a common stock dividend of $0.45 per share paid on January 27, 2015; a Series A preferred stock dividend of $0.4844 per share paid on January 26, 2015; and a Series B preferred stock dividend of $0.4844 per share that will be paid on March 27, 2015. The Company also declared a dividend on its Series B preferred stock of $0.5705 per share that was paid on December 29, 2014.
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 firm.
Earnings Call
Members of the investment community and the general public are invited to listen to the Company's earnings conference call on Tuesday, February 24, 2015, at 9:00 a.m. ET, by calling one of the following numbers:
North America Toll Free: 888-942-8507
International: 415-228-4839
Passcode: Invesco
An audio replay will be available until 5:00 pm ET on March 10, 2015 by calling:
800-839-1174 (North America) or 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 statements with respect to the Company's 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 the Company's expectations. The Company cautions investors not to rely unduly on any forward-looking statements and urges 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 the Company's 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 the Company makes, or that are attributable to the Company, are expressly qualified by this cautionary notice. The Company expressly disclaims 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 |
|
Years Ended |
||||||||
|
In thousands except share amounts |
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
148,655 |
|
|
160,168 |
|
|
596,357 |
|
|
646,787 |
|
|
Residential loans |
27,185 |
|
|
13,679 |
|
|
88,073 |
|
|
34,122 |
|
|
Commercial loans |
3,179 |
|
|
1,019 |
|
|
9,508 |
|
|
1,451 |
|
|
Total interest income |
179,019 |
|
|
174,866 |
|
|
693,938 |
|
|
682,360 |
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
46,050 |
|
|
79,061 |
|
|
188,699 |
|
|
287,547 |
|
|
Secured loans |
1,177 |
|
|
- |
|
|
2,576 |
|
|
- |
|
|
Exchangeable senior notes |
5,621 |
|
|
5,620 |
|
|
22,461 |
|
|
18,023 |
|
|
Asset-backed securities |
20,738 |
|
|
10,960 |
|
|
68,159 |
|
|
26,682 |
|
|
Total interest expense |
73,586 |
|
|
95,641 |
|
|
281,895 |
|
|
332,252 |
|
|
Net interest income |
105,433 |
|
|
79,225 |
|
|
412,043 |
|
|
350,108 |
|
|
(Reduction in) provision for loan losses |
(90) |
|
|
134 |
|
|
(142) |
|
|
884 |
|
|
Net interest income after provision for loan losses |
105,523 |
|
|
79,091 |
|
|
412,185 |
|
|
349,224 |
|
|
Other income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of investments, net |
1,006 |
|
|
(142,530) |
|
|
(79,430) |
|
|
(199,449) |
|
|
Equity in earnings of unconsolidated ventures |
1,306 |
|
|
176 |
|
|
6,786 |
|
|
5,345 |
|
|
Gain (loss) on derivative instruments, net |
(164,637) |
|
|
(4,421) |
|
|
(487,469) |
|
|
40,003 |
|
|
Realized and unrealized credit default swap income |
225 |
|
|
299 |
|
|
1,093 |
|
|
1,127 |
|
|
Other investment income (loss), net |
(687) |
|
|
- |
|
|
(2,045) |
|
|
- |
|
|
Total other income (loss) |
(162,787) |
|
|
(146,476) |
|
|
(561,065) |
|
|
(152,974) |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Management fee - related party |
9,723 |
|
|
10,533 |
|
|
37,599 |
|
|
42,639 |
|
|
General and administrative |
4,253 |
|
|
3,660 |
|
|
15,267 |
|
|
10,505 |
|
|
Total expenses |
13,976 |
|
|
14,193 |
|
|
52,866 |
|
|
53,144 |
|
|
Net income (loss) |
(71,240) |
|
|
(81,578) |
|
|
(201,746) |
|
|
143,106 |
|
|
Net income (loss) attributable to non-controlling interest |
(816) |
|
|
(906) |
|
|
(2,301) |
|
|
1,486 |
|
|
Net income (loss) attributable to Invesco Mortgage Capital Inc. |
(70,424) |
|
|
(80,672) |
|
|
(199,445) |
|
|
141,620 |
|
|
Dividends to preferred stockholders |
9,240 |
|
|
2,712 |
|
|
17,378 |
|
|
10,851 |
|
|
Undeclared cumulative dividends to preferred shareholders |
(661) |
|
|
- |
|
|
- |
|
|
- |
|
|
Net income (loss) attributable to common stockholders |
(79,003) |
|
|
(83,384) |
|
|
(216,823) |
|
|
130,769 |
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
(0.64) |
|
|
(0.63) |
|
|
(1.76) |
|
|
0.99 |
|
|
Diluted |
(0.64) |
|
|
(0.63) |
|
|
(1.76) |
|
|
0.99 |
|
|
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES |
|||||||||||
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
|||||||||||
|
(Unaudited) |
|||||||||||
|
|
|
|
|
||||||||
|
|
Three Months Ended |
|
Years Ended |
||||||||
|
In thousands |
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Net income (loss) |
(71,240) |
|
|
(81,578) |
|
|
(201,746) |
|
|
143,106 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on mortgage-backed securities |
74,692 |
|
|
(111,529) |
|
|
403,435 |
|
|
(874,545) |
|
|
Reclassification of unrealized loss on sale of mortgage-backed securities to gain (loss) on sales of investments, net |
(1,006) |
|
|
142,530 |
|
|
79,430 |
|
|
199,449 |
|
|
Unrealized gain (loss) on derivative instruments |
- |
|
|
79,744 |
|
|
- |
|
|
263,135 |
|
|
Reclassification of unrealized loss on derivative instruments to gain (loss) on derivatives, net |
- |
|
|
49,463 |
|
|
- |
|
|
166,016 |
|
|
Reclassification of amortization of repurchase agreements interest expense to repurchase agreements interest expense |
21,121 |
|
|
- |
|
|
85,176 |
|
|
- |
|
|
Total Other comprehensive income (loss) |
94,807 |
|
|
160,208 |
|
|
568,041 |
|
|
(245,945) |
|
|
Comprehensive income (loss) |
23,567 |
|
|
78,630 |
|
|
366,295 |
|
|
(102,839) |
|
|
Less: Comprehensive (income) loss attributable to non-controlling interest |
(269) |
|
|
(827) |
|
|
(4,188) |
|
|
1,029 |
|
|
Less: Dividends to preferred shareholders |
(9,240) |
|
|
(2,712) |
|
|
(17,378) |
|
|
(10,851) |
|
|
Less: Undeclared cumulative dividends to preferred shareholders |
661 |
|
|
- |
|
|
- |
|
|
- |
|
|
Comprehensive income (loss) attributable to common shareholders |
14,719 |
|
|
75,091 |
|
|
344,729 |
|
|
(112,661) |
|
|
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES |
|||||
|
CONSOLIDATED BALANCE SHEETS |
|||||
|
(Unaudited) |
|||||
|
|
|
||||
|
|
As of |
||||
|
In thousands except share amounts |
December 31, |
|
December 31, |
||
|
ASSETS |
|
|
|
|
|
|
Mortgage-backed securities, at fair value |
17,248,895 |
|
|
17,348,657 |
|
|
Residential loans, held-for-investment (1) |
3,365,003 |
|
|
1,810,262 |
|
|
Commercial loans, held-for-investment |
145,756 |
|
|
64,599 |
|
|
Cash and cash equivalents |
164,144 |
|
|
210,612 |
|
|
Due from counterparties |
57,604 |
|
|
1,500 |
|
|
Investment related receivable |
38,717 |
|
|
515,404 |
|
|
Accrued interest receivable |
66,044 |
|
|
68,246 |
|
|
Derivative assets, at fair value |
24,178 |
|
|
262,059 |
|
|
Deferred securitization and financing costs |
13,080 |
|
|
13,894 |
|
|
Other investments |
106,498 |
|
|
54,403 |
|
|
Other assets |
1,098 |
|
|
1,343 |
|
|
Total assets(1) |
21,231,017 |
|
|
20,350,979 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Repurchase agreements |
13,622,677 |
|
|
15,451,675 |
|
|
Secured loans |
1,250,000 |
|
|
- |
|
|
Asset-backed securities issued by securitization trusts (1) |
2,929,820 |
|
|
1,643,741 |
|
|
Exchangeable senior notes |
400,000 |
|
|
400,000 |
|
|
Derivative liabilities, at fair value |
254,026 |
|
|
263,204 |
|
|
Dividends and distributions payable |
61,757 |
|
|
66,087 |
|
|
Investment related payable |
17,008 |
|
|
28,842 |
|
|
Accrued interest payable |
29,670 |
|
|
26,492 |
|
|
Collateral held payable |
14,890 |
|
|
52,698 |
|
|
Accounts payable and accrued expenses |
2,439 |
|
|
4,304 |
|
|
Due to affiliate |
9,880 |
|
|
10,701 |
|
|
Total liabilities(1) |
18,592,167 |
|
|
17,947,744 |
|
|
Equity: |
|
|
|
|
|
|
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized: |
|
|
|
|
|
|
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference) |
135,356 |
|
|
135,356 |
|
|
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference) |
149,860 |
|
|
- |
|
|
Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 123,110,454 and 124,510,246 shares issued and outstanding, respectively |
1,231 |
|
|
1,245 |
|
|
Additional paid in capital |
2,532,130 |
|
|
2,552,464 |
|
|
Accumulated other comprehensive income (loss) |
404,559 |
|
|
(156,993) |
|
|
Retained earnings (distributions in excess of earnings) |
(612,821) |
|
|
(155,957) |
|
|
Total stockholders' equity |
2,610,315 |
|
|
2,376,115 |
|
|
Non-controlling interest |
28,535 |
|
|
27,120 |
|
|
Total equity |
2,638,850 |
|
|
2,403,235 |
|
|
Total liabilities and equity |
21,231,017 |
|
|
20,350,979 |
|
|
(1) The consolidated balance sheets include assets of consolidated variable interest entities ("VIEs") that can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to the Company. As of December 31, 2014 and December 31, 2013, total assets of the consolidated VIEs were $3,380,597 and $1,819,295, respectively, and total liabilities of the consolidated VIEs were $2,938,512 and $1,648,400, respectively. |
Non-GAAP Financial Measures
In addition to the results presented in accordance with U.S. GAAP, this release contains the non-GAAP financial measures of "core earnings," (and by calculation, "core earnings 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 "repurchase agreement debt-to-equity ratio." The Company's management uses these non-GAAP financial measures in its internal analysis of results and believes these measures are useful to investors for the reasons explained below. The most directly comparable U.S. GAAP measures are net income attributable to common shareholders (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 total debt-to-equity ratio.
These non-GAAP financial measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies. An analysis of any non-GAAP financial measure should be made in conjunction with results presented in accordance with U.S. GAAP. Additional reconciling items may be added to the non-GAAP measures if deemed appropriate.
Core Earnings
The Company calculates core earnings as U.S. GAAP net income attributable to common shareholders adjusted for (gain) loss on sale of investments, net; realized (gain) loss on derivative instruments, net (excluding contractual net interest on interest rate swaps); unrealized (gain) loss on derivative instruments, net; (gain) loss on foreign currency transactions; amortization of deferred swap losses from de-designation; and an adjustment attributable to non-controlling interest.
The Company believes the presentation of core earnings allows investors to evaluate and compare the performance of the Company to that of its peers because core earnings measures investment portfolio performance over multiple reporting periods by removing realized and unrealized gains and losses. The Company records changes in the valuation of its mortgage-backed securities in other comprehensive income on its consolidated balance sheets. Through December 31, 2013 the Company also recorded changes in the valuation of its interest rate swaps in other comprehensive income. Effective December 31, 2013, the Company voluntarily discontinued hedge accounting for its interest rate swaps. As a result of discontinuing hedge accounting, changes in the fair value value of interest rate swaps are recorded in gain (loss) on derivative instruments, net in the consolidated statement of operations, along with the change in fair value of the Company's other derivative instruments.
However, the Company cautions that core earnings should not be considered as an alternative to net income (determined in accordance with U.S. GAAP), or 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 an indication of amounts available to fund its cash needs, including its ability to make cash distributions.
The table below provides a reconciliation of U.S. GAAP net income attributable to common shareholders to core earnings for the following periods:
|
|
Three Months Ended |
|
Years Ended |
|||||||||||
|
$ in thousands, except per share data |
December 31, 2014 |
|
September 30, 2014 |
|
December 31, 2013 |
|
December 31, 2014 |
|
December 31, 2013 |
|||||
|
Net income (loss) attributable to common shareholders |
(79,003) |
|
|
30,672 |
|
|
(83,384) |
|
|
(216,823) |
|
|
130,769 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of investments, net |
(1,006) |
|
|
47,952 |
|
|
142,530 |
|
|
79,430 |
|
|
199,449 |
|
|
Realized (gain) loss on derivative instruments (excluding contractual net interest on interest rate swaps of $45,691, $50,446, $0, $199,783 and $0, respectively) |
37,310 |
|
|
1,016 |
|
|
12,308 |
|
|
72,187 |
|
|
(53,926) |
|
|
Unrealized (gain) loss on derivative instruments |
81,637 |
|
|
(47,758) |
|
|
(7,887) |
|
|
215,499 |
|
|
13,923 |
|
|
Loss on foreign currency transactions |
1,266 |
|
|
1,479 |
|
|
- |
|
|
2,746 |
|
|
- |
|
|
Amortization of deferred swap losses from de-designation |
21,121 |
|
|
21,227 |
|
|
- |
|
|
85,176 |
|
|
- |
|
|
Subtotal |
140,328 |
|
|
23,916 |
|
|
146,951 |
|
|
455,038 |
|
|
159,446 |
|
|
Adjustment attributable to non-controlling interest |
(1,606) |
|
|
(274) |
|
|
(1,608) |
|
|
(5,198) |
|
|
(1,740) |
|
|
Core earnings |
59,719 |
|
|
54,314 |
|
|
61,959 |
|
|
233,017 |
|
|
288,475 |
|
|
Basic earnings (loss) per common share |
(0.64) |
|
|
0.25 |
|
|
(0.63) |
|
|
(1.76) |
|
|
0.99 |
|
|
Core earnings per share attributable to common shareholders |
0.49 |
|
|
0.44 |
|
|
0.46 |
|
|
1.89 |
|
|
2.17 |
|
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 net interest paid on its interest rate swaps and amortization of deferred swap losses from de-designation that is being amortized into interest expense over the remaining lives of the swaps. The Company calculates effective net interest income (and by calculation, effective interest rate margin) as U.S. GAAP net interest income adjusted for net interest paid on its interest rate swaps and amortization of deferred swap losses from de-designation that is being amortized into interest expense over the remaining lives of the swaps. Although the Company elected to discontinue hedge accounting for its interest rate swaps as of January 1, 2014, such derivative instruments are viewed by the Company as an economic hedge against increases in future market interest rates on its liabilities.
The Company believes the presentation of effective interest expense, effective costs of funds, effective net interest income and effective interest rate margin measures, when considered together with U.S. GAAP financial measures, provide information that is useful to investors in understanding the Company's borrowing costs and investment performance.
The following tables reconcile total interest expense to effective interest expense and cost of funds to effective cost of funds for the following periods:
|
|
Three Months Ended December 31, 2014 |
|
Three Months Ended September 30, 2014 |
|
Three Months Ended December, 2013 |
||||||||||||
|
$ 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 |
73,586 |
|
|
1.64 |
% |
|
70,259 |
|
|
1.62 |
% |
|
95,641 |
|
|
2.14 |
% |
|
Less: Amortization of deferred swap losses from de-designation |
(21,121) |
|
|
(0.48) |
% |
|
(21,227) |
|
|
(0.49) |
% |
|
- |
|
|
- |
% |
|
Add: Net interest paid - interest rate swaps |
45,691 |
|
|
1.02 |
% |
|
50,446 |
|
|
1.16 |
% |
|
- |
|
|
- |
% |
|
Effective interest expense |
98,156 |
|
|
2.18 |
% |
|
99,478 |
|
|
2.29 |
% |
|
95,641 |
|
|
2.14 |
% |
|
|
Year Ended |
|
Year Ended |
||||||||
|
$ in thousands |
Reconciliation |
|
Cost of Funds / Effective Cost of Funds |
|
Reconciliation |
|
Cost of Funds / Effective Cost of Funds |
||||
|
Total interest expense |
281,895 |
|
|
1.61 |
% |
|
332,252 |
|
|
1.84 |
% |
|
Less: Amortization of deferred swap losses from de-designation |
(85,176) |
|
|
(0.48) |
% |
|
- |
|
|
- |
% |
|
Add: Net interest paid - interest rate swaps |
199,783 |
|
|
1.14 |
% |
|
- |
|
|
- |
% |
|
Effective interest expense |
396,502 |
|
|
2.27 |
% |
|
332,252 |
|
|
1.84 |
% |
The following tables reconcile 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 |
|
Three Months Ended |
|
Three Months Ended December 31, 2013 |
||||||||||||
|
$ 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 |
105,433 |
|
|
1.89 |
% |
|
99,146 |
|
|
1.84 |
% |
|
79,225 |
|
|
1.35 |
% |
|
Add: Amortization of deferred swap losses from de-designation |
21,121 |
|
|
0.48 |
% |
|
21,227 |
|
|
0.49 |
% |
|
- |
|
|
- |
% |
|
Less: Net interest paid - interest rate swaps |
(45,691) |
|
|
(1.02) |
% |
|
(50,446) |
|
|
(1.16) |
% |
|
- |
|
|
- |
% |
|
Effective net interest income |
80,863 |
|
|
1.35 |
% |
|
69,927 |
|
|
1.17 |
% |
|
79,225 |
|
|
1.35 |
% |
|
|
Year Ended |
|
Year Ended |
||||||||
|
$ in thousands |
Reconciliation |
|
Net Interest Rate Margin / Effective Interest Rate Margin |
|
Reconciliation |
|
Net Interest Rate Margin / Effective Interest Rate Margin |
||||
|
Net interest income |
412,043 |
|
|
1.89 |
% |
|
350,108 |
|
|
1.48 |
% |
|
Add: Amortization of deferred swap losses from de-designation |
85,176 |
|
|
0.48 |
% |
|
- |
|
|
- |
% |
|
Less: Net interest paid - interest rate swaps |
(199,783) |
|
|
(1.14) |
% |
|
- |
|
|
- |
% |
|
Effective net interest income |
297,436 |
|
|
1.23 |
% |
|
350,108 |
|
|
1.48 |
% |
Repurchase Agreement Debt-to-Equity Ratio
The following tables show the allocation of the Company's equity to its target assets, the Company's total debt-to-equity ratio, and the Company's repurchase agreement debt-to-equity ratio as of December 31, 2014, September 30, 2014 and December 31, 2013. The mortgage REIT industry primarily uses repurchase agreements, which typically mature within one year, to finance investments. Improving the Company's balance sheet by diversifying the Company's liabilities away from repurchase agreements has been a focus of management over the past two years. Since the Company began using other longer-term means of financing its investments, such as exchangeable senior notes, asset-backed securities issued by securitization trusts, and secured loans, the Company has reduced its reliance on repurchase agreements. The Company believes presenting repurchase agreement debt-to-equity ratio, a non-GAAP financial measure of leverage, when considered together with U.S. GAAP financial measures, provides information that is useful to investors in understanding the Company's refinancing risks, and gives investors a comparable statistic to other mortgage REITs who almost exclusively borrow using repurchase agreements which are short-term and subject to refinancing risk.
December 31, 2014
|
$ in thousands |
Agency |
Non-Agency (6) |
GSE CRT(6) |
CMBS (7) |
Comm- ercial Loans (7) |
Consol- idated VIEs (4)(6) |
Other (7) |
Elimin- ations (5) |
Total |
|||||||||
|
Investments |
10,091,989 |
|
3,494,181 |
|
625,424 |
|
3,469,835 |
|
145,756 |
|
3,365,003 |
|
43,998 |
|
(432,534) |
|
20,803,652 |
|
|
Cash and cash equivalents (1) |
64,603 |
|
41,578 |
|
10,154 |
|
47,809 |
|
- |
|
- |
|
- |
|
- |
|
164,144 |
|
|
Derivative assets, at fair value (2) |
23,183 |
|
396 |
|
- |
|
- |
|
599 |
|
- |
|
- |
|
- |
|
24,178 |
|
|
Other assets |
111,817 |
|
13,742 |
|
15,639 |
|
75,209 |
|
1,030 |
|
15,591 |
|
7,888 |
|
(1,873) |
|
239,043 |
|
|
Total assets |
10,291,592 |
|
3,549,897 |
|
651,217 |
|
3,592,853 |
|
147,385 |
|
3,380,594 |
|
51,886 |
|
(434,407) |
|
21,231,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
9,018,818 |
|
2,676,626 |
|
468,782 |
|
1,458,451 |
|
- |
|
- |
|
- |
|
- |
|
13,622,677 |
|
|
Secured loans (3) |
- |
|
- |
|
- |
|
1,250,000 |
|
- |
|
- |
|
- |
|
- |
|
1,250,000 |
|
|
Asset-backed securities issued by securitization trusts |
- |
|
- |
|
- |
|
- |
|
- |
|
3,362,354 |
|
- |
|
(432,534) |
|
2,929,820 |
|
|
Exchangeable senior notes |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
400,000 |
|
- |
|
400,000 |
|
|
Derivative liabilities, at fair value |
254,026 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
254,026 |
|
|
Other liabilities |
56,894 |
|
21,351 |
|
5,233 |
|
37,589 |
|
- |
|
10,563 |
|
5,887 |
|
(1,873) |
|
135,644 |
|
|
Total liabilities |
9,329,738 |
|
2,697,977 |
|
474,015 |
|
2,746,040 |
|
- |
|
3,372,917 |
|
405,887 |
|
(434,407) |
|
18,592,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated equity |
961,854 |
|
851,920 |
|
177,202 |
|
846,813 |
|
147,385 |
|
7,677 |
|
(354,001) |
|
- |
|
2,638,850 |
|
|
Less equity associated with secured loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral pledged |
|
|
- |
|
- |
|
(1,550,270) |
|
- |
|
- |
|
- |
|
- |
|
(1,550,270) |
|
|
Secured loans |
|
|
- |
|
- |
|
1,250,000 |
|
- |
|
- |
|
- |
|
- |
|
1,250,000 |
|
|
Net equity (excluding secured loans) |
961,854 |
|
851,920 |
|
177,202 |
|
546,543 |
|
NA |
|
NA |
|
NA |
|
- |
|
2,537,519 |
|
|
Total debt-to-equity ratio |
9.4 |
|
3.1 |
|
2.6 |
|
3.2 |
|
- |
|
NA |
|
NA |
|
NA |
|
6.9 |
|
|
Repurchase agreement debt-to-equity ratio |
9.4 |
|
3.1 |
|
2.6 |
|
2.7 |
|
NA |
|
NA |
|
NA |
|
NA |
|
5.4 |
|
|
(1) |
Cash and cash equivalents is allocated based on a percentage of equity for Agency, Non-Agency, GSE CRT and CMBS. |
|
(2) |
Derivative assets are allocated based on the hedging strategy for each asset class. |
|
(3) |
Secured loans are allocated based on amount of collateral pledged. |
|
(4) |
Represents VIE assets and liabilities before intercompany eliminations. VIEs are securitized entities with no substantive equity at risk. |
|
(5) |
Represents the Company's ownership of asset-backed securities and accrued interest eliminated upon consolidation. |
|
(6) |
Non-Agency, GSE CRT and Consolidated VIEs are considered residential credit. |
|
(7) |
CMBS, Commercial Loans and Investments in unconsolidated ventures of $44.0 million (which are included in Other), are considered commercial credit. |
September 30, 2014
|
$ in thousands |
Agency |
Non-Agency (6) |
GSE CRT (6) |
CMBS (7) |
Comm- ercial Loans (7) |
Consol- idated VIEs (4)(6) |
Other (7) |
Elimin- ations (5) |
Total |
|||||||||
|
Investments |
9,928,017 |
|
3,658,398 |
|
610,326 |
|
3,456,610 |
|
144,707 |
|
3,103,434 |
|
42,281 |
|
(356,317) |
|
20,587,456 |
|
|
Cash and cash equivalents (1) |
50,950 |
|
33,632 |
|
6,676 |
|
37,686 |
|
- |
|
- |
|
- |
|
- |
|
128,944 |
|
|
Derivative assets, at fair value (2) |
72,872 |
|
469 |
|
- |
|
- |
|
1,080 |
|
- |
|
- |
|
- |
|
74,421 |
|
|
Other assets |
105,282 |
|
30,285 |
|
507 |
|
68,036 |
|
837 |
|
14,788 |
|
10,251 |
|
(1,744) |
|
228,242 |
|
|
Total assets |
10,157,121 |
|
3,722,784 |
|
617,509 |
|
3,562,332 |
|
146,624 |
|
3,118,222 |
|
52,532 |
|
(358,061) |
|
21,019,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
8,693,555 |
|
2,830,368 |
|
463,828 |
|
1,584,138 |
|
- |
|
- |
|
- |
|
- |
|
13,571,889 |
|
|
Secured loans (3) |
149,526 |
|
- |
|
- |
|
1,100,474 |
|
- |
|
- |
|
- |
|
- |
|
1,250,000 |
|
|
Asset-backed securities issued by securitization trusts |
- |
|
- |
|
- |
|
- |
|
- |
|
3,102,257 |
|
- |
|
(356,317) |
|
2,745,940 |
|
|
Exchangeable senior notes |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
400,000 |
|
- |
|
400,000 |
|
|
Derivative liabilities, at fair value |
222,559 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
222,559 |
|
|
Other liabilities |
86,747 |
|
24,599 |
|
4,629 |
|
23,365 |
|
- |
|
9,973 |
|
705 |
|
(1,744) |
|
148,274 |
|
|
Total liabilities |
9,152,387 |
|
2,854,967 |
|
468,457 |
|
2,707,977 |
|
- |
|
3,112,230 |
|
400,705 |
|
(358,061) |
|
18,338,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated equity |
1,004,734 |
|
867,817 |
|
149,052 |
|
854,355 |
|
146,624 |
|
5,992 |
|
(348,173) |
|
- |
|
2,680,401 |
|
|
Less equity associated with secured loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral pledged |
(184,197) |
|
- |
|
- |
|
(1,355,651) |
|
- |
|
- |
|
- |
|
- |
|
(1,539,848) |
|
|
Secured loans |
149,526 |
|
- |
|
- |
|
1,100,474 |
|
- |
|
- |
|
- |
|
- |
|
1,250,000 |
|
|
Net equity (excluding secured loans) |
970,063 |
|
867,817 |
|
149,052 |
|
599,178 |
|
NA |
|
NA |
|
NA |
|
- |
|
2,586,110 |
|
|
Total debt-to-equity ratio |
8.8 |
|
3.3 |
|
3.1 |
|
3.1 |
|
- |
|
NA |
|
NA |
|
NA |
|
6.7 |
|
|
Repurchase agreement debt-to-equity ratio |
9.0 |
|
3.3 |
|
3.1 |
|
2.6 |
|
NA |
|
NA |
|
NA |
|
NA |
|
5.2 |
|
|
(1) |
Cash and cash equivalents is allocated based on a percentage of equity for Agency, Non-Agency, GSE CRT and CMBS. |
|
(2) |
Derivative assets are allocated based on the hedging strategy for each asset class. |
|
(3) |
Secured loans are allocated based on amount of collateral pledged. |
|
(4) |
Represents VIE assets and liabilities before intercompany eliminations. VIEs are securitized entities with no substantive equity at risk. |
|
(5) |
Represents the Company's ownership of asset-backed securities and accrued interest eliminated upon consolidation. |
|
(6) |
Non-Agency, GSE CRT and Consolidated VIEs are considered residential credit. |
|
(7) |
CMBS, Commercial Loans and Investments in unconsolidated ventures of $42.3 million (which are included in Other), are considered commercial credit. |
December 31, 2013
|
$ in thousands |
Agency |
Non-Agency (5) |
GSE CRT (5) |
CMBS (6) |
Comm- ercial Loans (6) |
Consol- idated VIEs (3)(5) |
Other (6) |
Elimin- ations (4) |
Total |
|||||||||
|
Investments |
10,944,787 |
|
3,770,130 |
|
167,981 |
|
2,628,560 |
|
64,599 |
|
1,810,262 |
|
44,403 |
|
(162,801) |
|
19,267,921 |
|
|
Cash and cash equivalents (1) |
96,957 |
|
62,669 |
|
4,658 |
|
46,328 |
|
- |
|
- |
|
- |
|
- |
|
210,612 |
|
|
Derivative assets, at fair value (2) |
258,814 |
|
3,245 |
|
- |
|
- |
|
|
|
- |
|
- |
|
- |
|
262,059 |
|
|
Other assets |
556,982 |
|
21,533 |
|
200 |
|
12,922 |
|
356 |
|
9,033 |
|
10,349 |
|
(988) |
|
610,387 |
|
|
Total assets |
11,857,540 |
|
3,857,577 |
|
172,839 |
|
2,687,810 |
|
64,955 |
|
1,819,295 |
|
54,752 |
|
(163,789) |
|
20,350,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements |
10,281,154 |
|
2,974,998 |
|
113,066 |
|
2,082,457 |
|
- |
|
- |
|
- |
|
- |
|
15,451,675 |
|
|
Asset-backed securities issued by securitization trusts |
- |
|
- |
|
- |
|
- |
|
- |
|
1,806,542 |
|
- |
|
(162,801) |
|
1,643,741 |
|
|
Exchangeable senior notes |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
400,000 |
|
- |
|
400,000 |
|
|
Derivative liabilities, at fair value |
263,204 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
263,204 |
|
|
Other liabilities |
131,206 |
|
26,887 |
|
1,745 |
|
18,807 |
|
- |
|
5,579 |
|
5,888 |
|
(988) |
|
189,124 |
|
|
Total liabilities |
10,675,564 |
|
3,001,885 |
|
114,811 |
|
2,101,264 |
|
- |
|
1,812,121 |
|
405,888 |
|
(163,789) |
|
17,947,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated equity |
1,181,976 |
|
855,692 |
|
58,028 |
|
586,546 |
|
64,955 |
|
7,174 |
|
(351,136) |
|
- |
|
2,403,235 |
|
|
Net equity |
1,181,976 |
|
855,692 |
|
58,028 |
|
586,546 |
|
NA |
|
NA |
|
NA |
|
- |
|
2,682,242 |
|
|
Total debt-to-equity ratio |
8.7 |
|
3.5 |
|
1.9 |
|
3.6 |
|
- |
|
NA |
|
NA |
|
NA |
|
7.3 |
|
|
Repurchase agreement debt-to-equity ratio |
8.7 |
|
3.5 |
|
1.9 |
|
3.6 |
|
NA |
|
NA |
|
NA |
|
NA |
|
5.8 |
|
|
(1) |
Cash and cash equivalents is allocated based on a percentage of equity for Agency, Non-Agency, GSE CRT and CMBS. |
|
(2) |
Derivative assets are allocated based on the hedging strategy for each asset class. |
|
(3) |
Represents VIE assets and liabilities before intercompany eliminations. VIEs are securitized entities with no substantive equity at risk. |
|
(4) |
Represents the Company's ownership of asset-backed securities and accrued interest eliminated upon consolidation. |
|
(5) |
Non-Agency, GSE CRT and Consolidated VIEs are considered residential credit. |
|
(6) |
CMBS, Commercial Loans and Investments in unconsolidated ventures of $44.4 million (which are included in Other), are considered commercial credit. |
Mortgage-Backed Securities
The following table summarizes certain characteristics of the Company's MBS portfolio as of December 31, 2014:
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
$ in thousands |
Principal |
|
Unamortized |
|
Amortized |
|
Unrealized |
|
Fair |
|
Net Weighted |
|
Period- |
|
Quarterly |
||||||||
|
Agency RMBS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 year fixed-rate |
1,236,297 |
|
|
60,764 |
|
|
1,297,061 |
|
|
30,040 |
|
|
1,327,101 |
|
|
4.05 |
% |
|
2.60 |
% |
|
2.66 |
% |
|
30 year fixed-rate |
4,432,301 |
|
|
297,311 |
|
|
4,729,612 |
|
|
60,681 |
|
|
4,790,293 |
|
|
4.29 |
% |
|
2.97 |
% |
|
3.05 |
% |
|
ARM* |
531,281 |
|
|
9,068 |
|
|
540,349 |
|
|
6,433 |
|
|
546,782 |
|
|
2.83 |
% |
|
2.27 |
% |
|
2.29 |
% |
|
Hybrid ARM |
2,901,078 |
|
|
50,757 |
|
|
2,951,835 |
|
|
25,083 |
|
|
2,976,918 |
|
|
2.78 |
% |
|
2.34 |
% |
|
2.24 |
% |
|
Total Agency pass-through |
9,100,957 |
|
|
417,900 |
|
|
9,518,857 |
|
|
122,237 |
|
|
9,641,094 |
|
|
3.69 |
% |
|
2.68 |
% |
|
2.71 |
% |
|
Agency-CMO(4) |
1,957,296 |
|
|
(1,502,785) |
|
|
454,511 |
|
|
(3,616) |
|
|
450,895 |
|
|
2.34 |
% |
|
4.57 |
% |
|
3.62 |
% |
|
Non-Agency RMBS(5)(6) |
3,555,249 |
|
|
(583,890) |
|
|
2,971,359 |
|
|
90,288 |
|
|
3,061,647 |
|
|
3.70 |
% |
|
4.12 |
% |
|
4.86 |
% |
|
GSE CRT(7) |
615,000 |
|
|
25,573 |
|
|
640,573 |
|
|
(15,149) |
|
|
625,424 |
|
|
4.85 |
% |
|
4.11 |
% |
|
4.02 |
% |
|
CMBS(8) |
3,277,208 |
|
|
54,893 |
|
|
3,332,101 |
|
|
137,734 |
|
|
3,469,835 |
|
|
4.74 |
% |
|
4.39 |
% |
|
4.38 |
% |
|
Total |
18,505,710 |
|
|
(1,588,309) |
|
|
16,917,401 |
|
|
331,494 |
|
|
17,248,895 |
|
|
3.74 |
% |
|
3.38 |
% |
|
3.49 |
% |
|
* |
Adjustable-rate mortgage ("ARM") |
|
|
|
|
(1) |
Net weighted average coupon ("WAC") as of December 31, 2014 is presented net of servicing and other fees. |
|
(2) |
Period-end weighted average yield is based on amortized cost as of December 31, 2014 and incorporates future prepayment and loss assumptions but excludes changes in anticipated interest rates. |
|
(3) |
Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the Company's average of the amortized cost of the investments. All yields are annualized. |
|
(4) |
Agency collateralized mortgage obligation ("Agency-CMO") includes interest-only securities which represent 29.1% of the balance based on fair value. |
|
(5) |
Non-Agency RMBS held by the Company is 52.8% variable rate, 40.1% fixed rate and 7.1% floating rate based on fair value. |
|
(6) |
Of the total discount in non-Agency RMBS, $405.5 million is non-accretable. |
|
(7) |
GSE CRT are general obligations of Fannie Mae or Freddie Mac that are structured to provide credit protection to the GSE issuer with respect to defaults and other credit events within reference pools of residential mortgage loans that collateralize MBS issued and guaranteed by such GSE. |
|
(8) |
CMBS includes commercial real estate mezzanine loan pass-through certificates which represent 1.3% of the balance based on fair value. |
Constant Prepayment Rates ("CPR")
The CPR of the Company's portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income. The Company's Agency, non-Agency RMBS and GSE CRT had a weighted average CPR of 12.0 and 12.1 for the three months ended December 31, 2014 and September 30, 2014, respectively. The table below shows the three month CPR for the Company's RMBS compared to bonds with similar characteristics ("Cohorts"):
|
|
December 31, 2014 |
|
September 30, 2014 |
||||||||
|
|
Company |
|
Cohort |
|
Company |
|
Cohort |
||||
|
15 year Agency RMBS |
11.9 |
|
|
15.0 |
|
|
12.9 |
|
|
14.8 |
|
|
30 year Agency RMBS |
11.8 |
|
|
13.5 |
|
|
12.0 |
|
|
12.8 |
|
|
Agency Hybrid ARM RMBS |
14.3 |
|
|
NA |
|
|
13.0 |
|
|
NA |
|
|
Non-Agency RMBS |
10.7 |
|
|
NA |
|
|
11.9 |
|
|
NA |
|
|
GSE CRT |
7.7 |
|
|
NA |
|
|
8.2 |
|
|
NA |
|
|
Weighted average CPR |
12.0 |
|
|
NA |
|
|
12.1 |
|
|
NA |
|
Borrowings
The Company has entered into repurchase agreements, secured loans and issued exchangeable senior notes to finance the majority of its portfolio of investments. The following table summarizes certain characteristics of the Company's borrowings at December 31, 2014 and December 31, 2013:
|
$ in thousands |
December 31, 2014 |
|
December 31, 2013 |
||||||||||||||
|
|
Amount |
|
Weighted |
|
Weighted |
|
Amount |
|
Weighted |
|
Weighted |
||||||
|
Repurchase Agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS |
9,018,818 |
|
|
0.35 |
% |
|
18 |
|
|
10,281,154 |
|
|
0.38 |
% |
|
19 |
|
|
Non-Agency RMBS |
2,676,626 |
|
|
1.51 |
% |
|
36 |
|
|
2,974,998 |
|
|
1.60 |
% |
|
33 |
|
|
GSE CRT |
468,782 |
|
|
1.55 |
% |
|
27 |
|
|
113,066 |
|
|
1.49 |
% |
|
42 |
|
|
CMBS |
1,458,451 |
|
|
1.32 |
% |
|
26 |
|
|
2,082,457 |
|
|
1.39 |
% |
|
23 |
|
|
Secured Loans |
1,250,000 |
|
|
0.37 |
% |
|
3,472 |
|
|
- |
|
|
- |
% |
|
0 |
|
|
Exchangeable Senior Notes |
400,000 |
|
|
5.00 |
% |
|
1,170 |
|
|
400,000 |
|
|
5.00 |
% |
|
1,535 |
|
|
Total |
15,272,677 |
|
|
0.81 |
% |
|
335 |
|
|
15,851,675 |
|
|
0.86 |
% |
|
60 |
|
The Company finances its residential loans held-for-investment through asset-backed securities issued by securitization trusts.
Interest Rate Swaps
As of December 31, 2014, the Company had the following interest rate swaps outstanding:
|
$ in thousands Counterparty |
|
|
|
|
Notional |
|
Maturity Date |
|
Fixed Interest |
||
|
Morgan Stanley Capital Services, LLC |
|
|
|
|
300,000 |
|
|
1/24/2016 |
|
2.12 |
% |
|
The Bank of New York Mellon |
|
|
|
|
300,000 |
|
|
1/24/2016 |
|
2.13 |
% |
|
Morgan Stanley Capital Services, LLC |
|
|
|
|
300,000 |
|
|
4/5/2016 |
|
2.48 |
% |
|
Credit Suisse International |
|
|
|
|
500,000 |
|
|
4/15/2016 |
|
2.27 |
% |
|
The Bank of New York Mellon |
|
|
|
|
500,000 |
|
|
4/15/2016 |
|
2.24 |
% |
|
JPMorgan Chase Bank, N.A. |
|
|
|
|
500,000 |
|
|
5/16/2016 |
|
2.31 |
% |
|
Goldman Sachs Bank USA |
|
|
|
|
500,000 |
|
|
5/24/2016 |
|
2.34 |
% |
|
Goldman Sachs Bank USA |
|
|
|
|
250,000 |
|
|
6/15/2016 |
|
2.67 |
% |
|
Wells Fargo Bank, N.A. |
|
|
|
|
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 |
% |
|
ING Capital Markets LLC |
|
|
|
|
350,000 |
|
|
2/24/2018 |
|
0.95 |
% |
|
Morgan Stanley Capital Services, LLC |
|
|
|
|
100,000 |
|
|
4/5/2018 |
|
3.10 |
% |
|
ING Capital Markets LLC |
|
|
|
|
300,000 |
|
|
5/5/2018 |
|
0.79 |
% |
|
JPMorgan Chase Bank, N.A. |
|
|
|
|
200,000 |
|
|
5/15/2018 |
|
2.93 |
% |
|
UBS AG |
|
|
|
|
500,000 |
|
|
5/24/2018 |
|
1.10 |
% |
|
ING Capital Markets LLC |
|
|
|
|
400,000 |
|
|
6/5/2018 |
|
0.87 |
% |
|
The Royal Bank of Scotland Plc |
|
|
|
|
500,000 |
|
|
9/5/2018 |
|
1.04 |
% |
|
Citibank, N.A. CME Clearing House |
|
(2) |
(3) |
|
300,000 |
|
|
2/5/2021 |
|
2.50 |
% |
|
The Royal Bank of Scotland Plc CME Clearing House |
|
(2) |
(3) |
|
300,000 |
|
|
2/5/2021 |
|
2.69 |
% |
|
Wells Fargo Bank, N.A. |
|
|
|
|
200,000 |
|
|
3/15/2021 |
|
3.14 |
% |
|
Citibank, N.A. |
|
|
|
|
200,000 |
|
|
5/25/2021 |
|
2.83 |
% |
|
HSBC Bank USA, National Association |
|
(1) |
|
|
550,000 |
|
|
2/24/2022 |
|
2.45 |
% |
|
HSBC Bank USA, National Association |
|
|
|
|
250,000 |
|
|
6/5/2023 |
|
1.91 |
% |
|
The Royal Bank of Scotland Plc |
|
|
|
|
500,000 |
|
|
8/15/2023 |
|
1.98 |
% |
|
Goldman Sachs Bank USA CME Clearing House |
|
(3) |
|
|
600,000 |
|
|
8/24/2023 |
|
2.88 |
% |
|
UBS AG |
|
|
|
|
250,000 |
|
|
11/15/2023 |
|
2.23 |
% |
|
HSBC Bank USA, National Association |
|
|
|
|
500,000 |
|
|
12/15/2023 |
|
2.20 |
% |
|
Total |
|
|
|
|
10,550,000 |
|
|
|
|
2.13 |
% |
|
(1) |
Forward start date of February 2015 |
|
(2) |
Forward start date of February 2016 |
|
(3) |
Beginning June 10, 2013, The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the Company clear new interest rate swap transactions through a central counterparty. Transactions that are centrally cleared result in the Company facing a clearing house, rather than a swap dealer, as counterparty. Central clearing requires the Company to post collateral in the form of initial and variation margin to the clearing house which reduces default risk. |
Average Balances
The table below presents certain information for the Company's portfolio for the three and twelve month periods ending December 31, 2014 and 2013.
|
|
Three Months Ended |
|
Years Ended |
||||||||
|
$ in thousands |
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
Average Balances*: |
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS: |
|
|
|
|
|
|
|
|
|
|
|
|
15 year fixed-rate, at amortized cost |
1,318,514 |
|
|
1,750,763 |
|
|
1,450,316 |
|
|
1,897,780 |
|
|
30 year fixed-rate, at amortized cost |
4,782,050 |
|
|
8,208,893 |
|
|
5,723,270 |
|
|
10,217,822 |
|
|
ARM, at amortized cost |
547,426 |
|
|
218,345 |
|
|
475,401 |
|
|
122,225 |
|
|
Hybrid ARM, at amortized cost |
2,888,464 |
|
|
1,472,418 |
|
|
2,452,062 |
|
|
758,625 |
|
|
MBS-CMO, at amortized cost |
461,314 |
|
|
484,222 |
|
|
476,636 |
|
|
496,607 |
|
|
Non-Agency RMBS, at amortized cost |
3,045,312 |
|
|
3,616,160 |
|
|
3,245,701 |
|
|
3,593,337 |
|
|
GSE CRT, at amortized cost |
634,146 |
|
|
37,431 |
|
|
478,921 |
|
|
9,435 |
|
|
CMBS, at amortized cost |
3,342,848 |
|
|
2,562,026 |
|
|
2,947,733 |
|
|
2,412,694 |
|
|
Residential loans, at amortized cost |
3,116,065 |
|
|
1,637,121 |
|
|
2,473,258 |
|
|
1,006,374 |
|
|
Commercial loans, at amortized cost |
146,575 |
|
|
43,938 |
|
|
109,551 |
|
|
14,858 |
|
|
Average MBS and Loans portfolio |
20,282,714 |
|
|
20,031,317 |
|
|
19,832,849 |
|
|
20,529,757 |
|
|
Average Portfolio Yields (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS: |
|
|
|
|
|
|
|
|
|
|
|
|
15 year fixed-rate |
2.66 |
% |
|
2.61 |
% |
|
2.66 |
% |
|
2.32 |
% |
|
30 year fixed-rate |
3.05 |
% |
|
3.13 |
% |
|
3.05 |
% |
|
2.88 |
% |
|
ARM |
2.29 |
% |
|
2.41 |
% |
|
2.30 |
% |
|
2.35 |
% |
|
Hybrid ARM |
2.24 |
% |
|
2.06 |
% |
|
2.28 |
% |
|
2.18 |
% |
|
MBS - CMO |
3.62 |
% |
|
3.47 |
% |
|
3.56 |
% |
|
2.26 |
% |
|
Non-Agency RMBS |
4.86 |
% |
|
4.63 |
% |
|
4.54 |
% |
|
4.59 |
% |
|
GSE CRT |
4.02 |
% |
|
5.85 |
% |
|
4.12 |
% |
|
5.80 |
% |
|
CMBS |
4.38 |
% |
|
4.51 |
% |
|
4.47 |
% |
|
4.64 |
% |
|
Residential loans |
3.50 |
% |
|
3.31 |
% |
|
3.57 |
% |
|
3.30 |
% |
|
Commercial loans |
8.49 |
% |
|
9.17 |
% |
|
8.56 |
% |
|
9.77 |
% |
|
Average MBS and Loans portfolio |
3.53 |
% |
|
3.49 |
% |
|
3.50 |
% |
|
3.32 |
% |
|
Average Borrowings*: |
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS (2) |
8,974,199 |
|
|
10,922,137 |
|
|
9,444,028 |
|
|
12,107,119 |
|
|
Non-Agency RMBS |
2,711,884 |
|
|
3,059,686 |
|
|
2,821,132 |
|
|
2,847,536 |
|
|
GSE CRT |
460,122 |
|
|
27,549 |
|
|
351,900 |
|
|
6,887 |
|
|
CMBS (2) |
2,694,711 |
|
|
1,973,330 |
|
|
2,305,970 |
|
|
1,900,365 |
|
|
Exchangeable senior notes |
400,000 |
|
|
400,000 |
|
|
400,000 |
|
|
321,111 |
|
|
Asset-backed securities issued by securitization trusts |
2,744,482 |
|
|
1,484,547 |
|
|
2,178,362 |
|
|
916,786 |
|
|
Total borrowed funds |
17,985,398 |
|
|
17,867,249 |
|
|
17,501,392 |
|
|
18,099,804 |
|
|
Maximum borrowings during the period (3) |
18,202,497 |
|
|
18,058,789 |
|
|
18,202,497 |
|
|
19,710,901 |
|
|
Average Cost of Funds (4): |
|
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS (2) |
0.33 |
% |
|
0.39 |
% |
|
0.34 |
% |
|
0.40 |
% |
|
Non-Agency RMBS |
1.56 |
% |
|
1.56 |
% |
|
1.54 |
% |
|
1.60 |
% |
|
GSE CRT |
1.58 |
% |
|
1.50 |
% |
|
1.52 |
% |
|
1.50 |
% |
|
CMBS (2) |
0.92 |
% |
|
1.43 |
% |
|
1.11 |
% |
|
1.45 |
% |
|
Exchangeable senior notes |
5.62 |
% |
|
5.62 |
% |
|
5.62 |
% |
|
5.61 |
% |
|
Asset-backed securities issued by securitization trusts |
3.02 |
% |
|
2.95 |
% |
|
3.13 |
% |
|
2.91 |
% |
|
Unhedged cost of funds (5) |
1.16 |
% |
|
1.03 |
% |
|
1.13 |
% |
|
0.92 |
% |
|
Hedged / Effective cost of funds (non-GAAP measure) |
2.18 |
% |
|
2.14 |
% |
|
2.27 |
% |
|
1.84 |
% |
|
Average Equity (6): |
2,407,357 |
|
|
2,403,443 |
|
|
2,416,078 |
|
|
2,577,817 |
|
|
Average debt/equity ratio (average during period) |
7.5x |
|
7.4x |
|
7.2x |
|
7.0x |
||||
|
Debt/equity ratio (as of period end) |
6.9x |
|
7.3x |
|
6.9x |
|
7.3x |
|
* |
Average amounts for each period are based on weighted month-end balances; all percentages are annualized. For the three and twelve months ended December 31, 2014, the average balances are presented on an amortized cost basis. |
|
|
|
|
(1) |
Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the Company's average of the amortized cost of the investments. All yields are annualized. |
|
(2) |
Agency RMBS and CMBS average borrowing and cost of funds include borrowings under repurchase agreements and secured loans. |
|
(3) |
Amount represents the maximum borrowings at month-end during each of the respective periods. |
|
(4) |
Average cost of funds is calculated by dividing annualized interest expense by the Company's average borrowings. |
|
(5) |
Excludes amortization of deferred swap losses from de-designation. |
|
(6) |
Average equity is calculated based on a weighted balance basis. |
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SOURCE Invesco Mortgage Capital Inc.