ATLANTA, Aug. 6, 2020 /PRNewswire/ -- Invesco
Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced
financial results for the quarter ended June 30, 2020.
Update from John
Anzalone, Chief Executive Officer
"The Company's financial performance for the second quarter of
2020 continued to be driven by market disruption associated with
the COVID-19 pandemic. Despite the disruption, we successfully
increased liquidity and reduced leverage early in the second
quarter through select dispositions of our credit investments. We
repaid borrowings totaling $6.9
billion during the quarter.
"As of July 31, 2020, we have
reduced our credit assets to $1.1
billion and our secured loans to $305.0 million. Positively, our remaining credit
investments benefited from increased investor demand which
contributed to book value. We plan to further reduce our exposure
to credit assets in the second half of 2020 as the credit markets,
which are supported by unprecedented government action, continue to
stabilize.
"We have increased our Agency RMBS holdings to $2.2 billion as of July
31, 2020 and remain focused on hedging targeted portfolio
risks and maintaining substantial liquidity. We believe the current
market environment for Agency RMBS is attractive given a
combination of reliable funding at attractive terms and continued
support from the Federal Reserve's asset purchase program. We
expect our allocation to Agency RMBS to continue to grow as we
reduce the size of our credit portfolio."
Key performance indicators for the quarters ended June 30,
2020 and March 31, 2020 are
summarized in the table below.
|
($ in millions,
except share amounts)
|
Q2 '20
|
Q1 '20
|
Variance
|
|
Average
Balances
|
(unaudited)
|
(unaudited)
|
|
|
Average earning
assets (at amortized cost)
|
$1,905.6
|
|
$17,837.7
|
|
($15,932.1)
|
|
|
Average
borrowings
|
$982.0
|
|
$16,532.0
|
|
($15,550.0)
|
|
|
Average stockholders'
equity*
|
$796.8
|
|
$2,280.4
|
|
($1,483.6)
|
|
|
|
|
|
|
U.S. GAAP
Financial Measures
|
|
|
|
|
Total interest
income
|
$30.2
|
|
$186.7
|
|
($156.5)
|
|
|
Total interest
expense
|
$0.4
|
|
$85.7
|
|
($85.3)
|
|
|
Net interest
income
|
$29.7
|
|
$101.0
|
|
($71.3)
|
|
|
Total
expenses
|
$13.9
|
|
$14.1
|
|
($0.2)
|
|
|
Net income (loss)
attributable to common stockholders
|
($299.9)
|
|
($1,627.3)
|
|
$1,327.4
|
|
|
|
|
|
|
Average earning asset
yields
|
6.33
|
%
|
4.19
|
%
|
2.14
|
%
|
|
Average cost of
funds
|
0.18
|
%
|
2.07
|
%
|
(1.89)
|
%
|
|
Average net interest
rate margin
|
6.15
|
%
|
2.12
|
%
|
4.03
|
%
|
|
|
|
|
|
Period-end weighted
average asset yields**
|
5.22
|
%
|
4.55
|
%
|
0.67
|
%
|
|
Period-end weighted
average cost of funds
|
0.62
|
%
|
1.69
|
%
|
(1.07)
|
%
|
|
Period-end weighted
average net interest rate margin
|
4.60
|
%
|
2.86
|
%
|
1.74
|
%
|
|
|
|
|
|
Book value per common
share***
|
$3.17
|
|
$5.02
|
|
($1.85)
|
|
|
Earnings (loss) per
common share (basic)
|
($1.80)
|
|
($10.38)
|
|
$8.58
|
|
|
Earnings (loss) per
common share (diluted)
|
($1.80)
|
|
($10.38)
|
|
$8.58
|
|
|
Debt-to-equity
ratio
|
0.6x
|
|
5.4x
|
|
(4.8x)
|
|
|
|
|
|
|
Non-GAAP Financial
Measures****
|
|
|
|
|
Effective interest
income
|
$31.3
|
|
$191.4
|
|
($160.1)
|
|
|
Effective interest
expense
|
$4.9
|
|
$83.8
|
|
($78.9)
|
|
|
Effective net
interest income
|
$26.4
|
|
$107.6
|
|
($81.2)
|
|
|
|
|
|
|
Effective
yield
|
6.57
|
%
|
4.29
|
%
|
2.28
|
%
|
|
Effective cost of
funds
|
2.01
|
%
|
2.02
|
%
|
(0.01)
|
%
|
|
Effective interest
rate margin
|
4.56
|
%
|
2.27
|
%
|
2.29
|
%
|
|
|
|
|
|
* Average
stockholders' equity is calculated based on the weighted month-end
balance of total stockholders' equity excluding equity attributable
to preferred stockholders.
|
|
** Period-end
weighted average yields are based on amortized cost as of period
end and incorporate future prepayment and loss
assumptions.
|
|
*** Book value per
common share is calculated as total equity less the liquidation
preference of our Series A Preferred Stock ($140.0 million), Series
B Preferred Stock ($155.0 million) and Series C Preferred Stock
($287.5 million); divided by total common shares
outstanding.
|
|
**** Effective
interest income (and by calculation, effective yield), effective
interest expense (and by calculation, effective cost of funds), and
effective net interest income (and by calculation, effective
interest rate margin) 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 total interest income (and by calculation, average
earning asset yields), total interest expense (and by calculation,
cost of funds), net interest income (and by calculation, net
interest rate margin).
|
Financial Summary
The Company's financial performance for the second quarter of
2020 continued to be driven by market disruption associated with
the COVID-19 pandemic. During the quarter, the Company received
proceeds of $6.9 billion from the
sale of securities and repaid $6.3
billion of repurchase agreement borrowings and $610.0 million of secured loans. The Company
reported a net loss attributable to common stockholders for the
second quarter of 2020 of $299.9
million primarily due to a net loss on investments of
$306.4 million and expenses of
$13.9 million that was partially
offset by net interest income of $29.7
million. Book value per common share for the second quarter
of 2020 was also negatively impacted by a net loss on investments
and declined to $3.17 per share
compared to $5.02 in the first
quarter of 2020.
Total average assets decreased to $1.9
billion from $17.8 billion in
the first quarter of 2020, and total borrowings decreased to
$982.0 million from $16.5 billion in the first quarter of 2020. The
Company did not have any repurchase agreement borrowings as of
June 30, 2020 and reduced its debt-to-equity ratio to 0.6x as
of June 30, 2020 compared to 5.4x as of March 31, 2020.
Total expenses for the second quarter of 2020 decreased to
approximately $13.9 million compared
to $14.1 million for the first
quarter of 2020. The Company's management fees declined to
$9.8 million from $11.0 million in the first quarter of 2020 due to
its lower equity base, but the decrease was partially offset by
fees paid for third-party legal and advisory services in connection
with navigating market disruption associated with the COVID-19
pandemic totaling $1.5 million. The
ratio of annualized total expenses to average equity (1)
increased to 6.96% compared to 2.47% for the first quarter of 2020
due to lower average stockholders' equity.
As of June 30, 2020, the Company's investment portfolio was
$1.6 billion and primarily consisted
of non-Agency CMBS and GSE CRT securities. The Company resumed
investing in 30 year fixed-rate Agency RMBS specified pools in
July 2020 and financed its purchases
with repurchase agreements. As of July 31,
2020, the Company had a total investment portfolio,
excluding cash, of approximately $3.3
billion consisting of 68% of Agency RMBS, 30% of commercial
credit investments and 2% of residential credit investments.
Approximately $473 million of the investment portfolio was
unencumbered. As of July 31, 2020,
the Company had a cash balance of $230.3
million, approximately $89.5
million of which was posted as collateral for derivatives
and secured loans. The Company's total debt consisted of
$2.1 billion of repurchase agreement
borrowings that are collateralized by Agency RMBS and $305.0 million of secured loans that are
collateralized by non-Agency CMBS and cash as of July 31, 2020.
As previously announced, the Company declared the following
dividends on June 17, 2020: a common
stock dividend of $0.02 per share
paid on July 28, 2020 to stockholders
of record on July 6, 2020 and a
Series A Preferred Stock dividend of $0.4844 per share paid on July 27, 2020 to its stockholders of record as of
July 1, 2020. The Company declared
the following dividends on its Series B and Series C Preferred
Stock on August 5, 2020 to its
stockholders of record as of September 5,
2020: a Series B Preferred Stock dividend of $0.4844 per share payable on September 28, 2020 and a Series C Preferred Stock
dividend of $0.46875 per share
payable on September 28, 2020.
|
(1)
|
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
residential and commercial mortgage-backed securities and mortgage
loans. 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 7, 2020, at
9:00 a.m. ET, by calling one of the
following numbers:
|
North America Toll
Free:
|
800-857-7465
|
|
International:
|
1-312-470-0052
|
|
Passcode:
|
Invesco
|
An audio replay will be available until 5:00 pm ET on August 21,
2020 by calling:
888-566-0439 (North America) or
1-203-369-3045 (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 residential and commercial real estate market), the
ongoing spread and the economic and operational impact of the
COVID-19 pandemic, the market for our target assets, our financial
performance, including our core earnings, comprehensive income and
changes in our book value, 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.
Investor Relations Contact: Jack
Bateman, 404-439-3323
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in thousands,
except share amounts
|
June 30,
2020
|
|
March 31,
2020
|
|
June 30,
2019
|
|
June 30,
2019
|
|
June 30,
2019
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and
credit risk transfer securities
|
29,628
|
|
|
185,536
|
|
|
200,737
|
|
|
215,164
|
|
|
386,229
|
|
|
Commercial and other
loans
|
545
|
|
|
1,163
|
|
|
1,484
|
|
|
1,708
|
|
|
3,066
|
|
|
Total interest
income
|
30,173
|
|
|
186,699
|
|
|
202,221
|
|
|
216,872
|
|
|
389,295
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements
(1)
|
(1,270)
|
|
|
79,042
|
|
|
117,978
|
|
|
77,772
|
|
|
219,853
|
|
|
Secured
loans
|
1,712
|
|
|
6,646
|
|
|
11,258
|
|
|
8,358
|
|
|
22,402
|
|
|
Total interest
expense
|
442
|
|
|
85,688
|
|
|
129,236
|
|
|
86,130
|
|
|
242,255
|
|
|
Net interest
income
|
29,731
|
|
|
101,011
|
|
|
72,985
|
|
|
130,742
|
|
|
147,040
|
|
|
Other Income
(loss)
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on
investments, net
|
(306,366)
|
|
|
(755,483)
|
|
|
302,182
|
|
|
(1,061,849)
|
|
|
570,564
|
|
|
Equity in earnings
(losses) of unconsolidated ventures
|
318
|
|
|
170
|
|
|
702
|
|
|
488
|
|
|
1,394
|
|
|
Gain (loss) on
derivative instruments, net
|
(343)
|
|
|
(910,779)
|
|
|
(344,733)
|
|
|
(911,122)
|
|
|
(546,193)
|
|
|
Realized and
unrealized credit derivative income (loss), net
|
(2,738)
|
|
|
(33,052)
|
|
|
(2,438)
|
|
|
(35,790)
|
|
|
5,446
|
|
|
Net gain (loss) on
extinguishment of debt
|
3,701
|
|
|
(4,806)
|
|
|
—
|
|
|
(1,107)
|
|
|
—
|
|
|
Other investment
income (loss), net
|
731
|
|
|
803
|
|
|
1,007
|
|
|
1,534
|
|
|
2,036
|
|
|
Total other income
(loss)
|
(304,697)
|
|
|
(1,703,147)
|
|
|
(43,280)
|
|
|
(2,007,846)
|
|
|
33,247
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Management fee –
related party
|
9,793
|
|
|
10,953
|
|
|
9,370
|
|
|
20,746
|
|
|
18,904
|
|
|
General and
administrative
|
4,080
|
|
|
3,103
|
|
|
1,999
|
|
|
7,181
|
|
|
4,257
|
|
|
Total
expenses
|
13,873
|
|
|
14,056
|
|
|
11,369
|
|
|
27,927
|
|
|
23,161
|
|
|
Net income
(loss)
|
(288,839)
|
|
|
(1,616,192)
|
|
|
18,336
|
|
|
(1,905,031)
|
|
|
157,126
|
|
|
Dividends to
preferred stockholders
|
11,106
|
|
|
11,107
|
|
|
11,106
|
|
|
22,213
|
|
|
22,213
|
|
|
Net income (loss)
attributable to common stockholders
|
(299,945)
|
|
|
(1,627,299)
|
|
|
7,230
|
|
|
(1,927,244)
|
|
|
134,913
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
(1.80)
|
|
|
(10.38)
|
|
|
0.06
|
|
|
(11.91)
|
|
|
1.08
|
|
|
Diluted
|
(1.80)
|
|
|
(10.38)
|
|
|
0.06
|
|
|
(11.91)
|
|
|
1.08
|
|
|
(1)
|
Negative interest
expense on repurchase agreements for the three months ended June
30, 2020 consists of $3.2 million of current period interest
expense on repurchase agreements and $4.5 million of amortization
of net deferred gains on de-designated interest rate swaps. For
further information on amortization of amounts classified in
accumulated other comprehensive income before the Company
discontinued hedge accounting, see Note 8 and Note 12 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, 2020.
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2020
|
|
March 31,
2020
|
|
June 30,
2019
|
|
June 30,
2020
|
|
June 30,
2019
|
|
Net income
(loss)
|
(288,839)
|
|
|
(1,616,192)
|
|
|
18,336
|
|
|
(1,905,031)
|
|
|
157,126
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss)
on mortgage-backed and credit risk transfer securities,
net
|
(53,271)
|
|
|
(186,605)
|
|
|
47,188
|
|
|
(239,876)
|
|
|
99,537
|
|
|
Reclassification of
unrealized (gain) loss on sale of mortgage-backed and credit risk
transfer securities to gain (loss) on investments, net
|
34,782
|
|
|
36,957
|
|
|
(121)
|
|
|
71,739
|
|
|
10,026
|
|
|
Reclassification of
amortization of net deferred (gain) loss on de-designated interest
rate swaps to repurchase agreements interest expense
|
(4,503)
|
|
|
(10,067)
|
|
|
(5,916)
|
|
|
(14,570)
|
|
|
(11,767)
|
|
|
Currency translation
adjustments on investment in unconsolidated venture
|
(388)
|
|
|
480
|
|
|
(320)
|
|
|
92
|
|
|
(596)
|
|
|
Total other
comprehensive income (loss)
|
(23,380)
|
|
|
(159,235)
|
|
|
40,831
|
|
|
(182,615)
|
|
|
97,200
|
|
|
Comprehensive income
(loss)
|
(312,219)
|
|
|
(1,775,427)
|
|
|
59,167
|
|
|
(2,087,646)
|
|
|
254,326
|
|
|
Less: Dividends to
preferred stockholders
|
(11,106)
|
|
|
(11,107)
|
|
|
(11,106)
|
|
|
(22,213)
|
|
|
(22,213)
|
|
|
Comprehensive income
(loss) attributable to common stockholders
|
(323,325)
|
|
|
(1,786,534)
|
|
|
48,061
|
|
|
(2,109,859)
|
|
|
232,113
|
|
|
INVESCO MORTGAGE
CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
As
of
|
|
$ in
thousands except share amounts
|
June 30,
2020
|
|
December 31,
2019
|
|
ASSETS
|
|
|
Mortgage-backed and
credit risk transfer securities, at fair value (including pledged
securities of $1,070,928 and $21,132,742, respectively)
|
1,584,158
|
|
|
21,771,786
|
|
|
Cash and cash
equivalents
|
270,161
|
|
|
172,507
|
|
|
Restricted
cash
|
1,409
|
|
|
116,995
|
|
|
Due from
counterparties
|
—
|
|
|
32,568
|
|
|
Investment related
receivable
|
14,232
|
|
|
67,976
|
|
|
Derivative assets, at
fair value
|
—
|
|
|
18,533
|
|
|
Other assets
(including pledged security of $44,654 as of December 31,
2019)
|
79,512
|
|
|
166,180
|
|
|
Total
assets
|
1,949,472
|
|
|
22,346,545
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
Liabilities:
|
|
|
|
|
Repurchase
agreements
|
—
|
|
|
17,532,303
|
|
|
Secured
loans
|
740,000
|
|
|
1,650,000
|
|
|
Derivative
liabilities, at fair value
|
507
|
|
|
352
|
|
|
Dividends
payable
|
6,339
|
|
|
74,841
|
|
|
Investment related
payable
|
31,500
|
|
|
99,561
|
|
|
Accrued interest
payable
|
167
|
|
|
43,998
|
|
|
Collateral held
payable
|
—
|
|
|
170
|
|
|
Accounts payable and
accrued expenses
|
2,606
|
|
|
1,560
|
|
|
Due to
affiliate
|
10,561
|
|
|
11,861
|
|
|
Other
liabilities
|
|
|
—
|
|
|
Total
liabilities
|
791,680
|
|
|
19,414,646
|
|
|
Commitments and
contingencies (See Note 14) (1)
|
|
|
|
|
Stockholders'
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
|
|
|
149,860
|
|
|
7.50%
Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock:
11,500,000 shares issued and outstanding ($287,500 aggregate
liquidation preference)
|
278,108
|
|
|
278,108
|
|
|
Common Stock, par
value $0.01 per share; 450,000,000 shares authorized; 181,327,368
and 144,256,357 shares issued and outstanding,
respectively
|
1,813
|
|
|
1,443
|
|
|
Additional paid in
capital
|
3,313,801
|
|
|
2,892,652
|
|
|
Accumulated other
comprehensive income
|
106,348
|
|
|
288,963
|
|
|
Retained earnings
(distributions in excess of earnings)
|
(2,827,494)
|
|
|
(814,483)
|
|
|
Total stockholders'
equity
|
1,157,792
|
|
|
2,931,899
|
|
|
Total liabilities and
stockholders' equity
|
1,949,472
|
|
|
22,346,545
|
|
|
(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, 2020.
|
Non-GAAP Financial Measures
The Company has historically used the following non-GAAP
financial measures to analyze its operating results and believes
these financial measures have been useful to investors in assessing
the Company's performance as further discussed below:
- core earnings (1) (and by calculation, core earnings
per common share),
- effective interest income (and by calculation, effective
yield),
- 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 most directly comparable U.S. GAAP measures are:
- net income (loss) attributable to common stockholders (and by
calculation, basic earnings (loss) per common share),
- total interest income (and by calculation, earning asset
yields),
- total interest expense (and by calculation, cost of
funds),
- net interest income (and by calculation, net interest rate
margin), and
- debt-to-equity ratio
The Company is not presenting core earnings for the three and
six months ended June 30, 2020
because core earnings excludes the material adverse impact that the
market disruption caused by the COVID-19 pandemic has had on the
Company's financial condition. In addition, core earnings for the
three and six months ended June 30,
2020 is not indicative of the reduced earnings potential of
the Company's current investment portfolio. The Company intends to
resume reporting core earnings when its presentation provides a
useful measure of the portfolio's earning capacity.
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.
|
(1)
|
The Company has
historically calculated core earnings 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; realized and unrealized (gain) loss on GSE CRT embedded
derivatives, net; (gain) loss on foreign currency transactions,
net; amortization of net deferred (gain) loss on de-designated
interest rate swaps; and net loss on extinguishment of
debt.
|
Effective Interest Income/ Effective Yield/ Effective
Interest Expense/Effective Cost of Funds/Effective Net Interest
Income/Effective Interest Rate Margin
The Company calculates effective interest income (and by
calculation, effective yield) as U.S. GAAP total interest income
adjusted for GSE CRT embedded derivative coupon interest that is
recorded as realized and unrealized credit derivative income
(loss), net. The Company includes its GSE CRT embedded derivative
coupon interest in effective interest income because GSE CRT coupon
interest is not accounted for consistently under U.S. GAAP. The
Company accounts for GSE CRTs purchased prior to August 24, 2015 as hybrid financial instruments,
but has elected the fair value option for GSE CRTs purchased on or
after August 24, 2015. Under U.S.
GAAP, coupon interest on GSE CRTs accounted for using the fair
value option is recorded as interest income, whereas coupon
interest on GSE CRTs accounted for as hybrid financial instruments
is recorded as realized and unrealized credit derivative income
(loss). The Company adds back GSE CRT embedded derivative coupon
interest to its total interest income because the Company considers
GSE CRT embedded derivative coupon interest a current component of
its total interest income irrespective of whether the Company has
elected the fair value option for the GSE CRT or accounted for the
GSE CRT as a hybrid financial instrument.
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 floating rate
borrowings. The Company adds back the net payments it makes 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, amortization of net deferred
gains (losses) on de-designated interest rate swaps that is
recorded as repurchase agreements interest expense and GSE CRT
embedded derivative coupon interest that is recorded as realized
and unrealized credit derivative income (loss), net.
The Company believes the presentation of effective interest
income, effective yield, 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, provide information that is useful to investors in
understanding the Company's borrowing costs and operating
performance.
The following tables reconcile total interest income to
effective interest income and yield to effective yield for the
following periods:
|
Three Months
Ended
|
|
June 30,
2020
|
|
March 31,
2020
|
|
June 30,
2019
|
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Total interest
income
|
30,173
|
|
|
6.33
|
%
|
|
186,699
|
|
|
4.19
|
%
|
|
202,221
|
|
|
3.89
|
%
|
|
Add: GSE CRT embedded
derivative coupon interest recorded as realized and unrealized
credit derivative income (loss), net
|
1,127
|
|
|
0.24
|
%
|
|
4,718
|
|
|
0.10
|
%
|
|
5,300
|
|
|
0.10
|
%
|
|
Effective interest
income
|
31,300
|
|
|
6.57
|
%
|
|
191,417
|
|
|
4.29
|
%
|
|
207,521
|
|
|
3.99
|
%
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
$ in
thousands
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Reconciliation
|
|
Yield/Effective
Yield
|
|
Total interest
income
|
216,872
|
|
|
4.39
|
%
|
|
389,295
|
|
|
3.90
|
%
|
|
Add: GSE CRT embedded
derivative coupon interest recorded as realized and unrealized
credit derivative income (loss), net
|
5,845
|
|
|
0.12
|
%
|
|
10,650
|
|
|
0.10
|
%
|
|
Effective interest
income
|
222,717
|
|
|
4.51
|
%
|
|
399,945
|
|
|
4.00
|
%
|
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
|
|
June 30,
2020
|
|
March 31,
2020
|
|
June 30,
2019
|
|
$ 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
|
442
|
|
|
0.18
|
%
|
|
85,688
|
|
|
2.07
|
%
|
|
129,236
|
|
|
2.73
|
%
|
|
Add (Less):
Amortization of net deferred gain (loss) on de-designated interest
rate swaps
|
4,503
|
|
|
1.83
|
%
|
|
10,067
|
|
|
0.24
|
%
|
|
5,916
|
|
|
0.13
|
%
|
|
Add (Less):
Contractual net interest expense (income) on interest rate swaps
recorded as gain (loss) on derivative instruments, net
|
—
|
|
|
—
|
%
|
|
(11,924)
|
|
|
(0.29)
|
%
|
|
(7,525)
|
|
|
(0.16)
|
%
|
|
Effective interest
expense
|
4,945
|
|
|
2.01
|
%
|
|
83,831
|
|
|
2.02
|
%
|
|
127,627
|
|
|
2.70
|
%
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
$ in
thousands
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Reconciliation
|
|
Cost of Funds /
Effective Cost of Funds
|
|
Total interest
expense
|
86,130
|
|
|
1.97
|
%
|
|
242,255
|
|
|
2.69
|
%
|
|
Add (Less):
Amortization of net deferred gain (loss) on de-designated interest
rate swaps
|
14,570
|
|
|
0.33
|
%
|
|
11,767
|
|
|
0.13
|
%
|
|
Add (Less):
Contractual net interest expense (income) on interest rate swaps
recorded as gain (loss) on derivative instruments, net
|
(11,924)
|
|
|
(0.27)
|
%
|
|
(12,034)
|
|
|
(0.13)
|
%
|
|
Effective interest
expense
|
88,776
|
|
|
2.03
|
%
|
|
241,988
|
|
|
2.69
|
%
|
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,
2020
|
|
March 31,
2020
|
|
June 30,
2019
|
|
$ 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
|
29,731
|
|
|
6.15
|
%
|
|
101,011
|
|
|
2.12
|
%
|
|
72,985
|
|
|
1.16
|
%
|
|
Add (Less):
Amortization of net deferred (gain) loss on de-designated interest
rate swaps
|
(4,503)
|
|
|
(1.83)
|
%
|
|
(10,067)
|
|
|
(0.24)
|
%
|
|
(5,916)
|
|
|
(0.13)
|
%
|
|
Add: GSE CRT embedded
derivative coupon interest recorded as realized and unrealized
credit derivative income (loss), net
|
1,127
|
|
|
0.24
|
%
|
|
4,718
|
|
|
0.10
|
%
|
|
5,300
|
|
|
0.10
|
%
|
|
Add (Less):
Contractual net interest income (expense) on interest rate swaps
recorded as gain (loss) on derivative instruments, net
|
—
|
|
|
—
|
%
|
|
11,924
|
|
|
0.29
|
%
|
|
7,525
|
|
|
0.16
|
%
|
|
Effective net
interest income
|
26,355
|
|
|
4.56
|
%
|
|
107,586
|
|
|
2.27
|
%
|
|
79,894
|
|
|
1.29
|
%
|
|
Six Months Ended
June 30,
|
|
2020
|
|
2019
|
|
$ in
thousands
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Reconciliation
|
|
Net Interest Rate
Margin / Effective Interest Rate Margin
|
|
Net interest
income
|
130,742
|
|
|
2.42
|
%
|
|
147,040
|
|
|
1.21
|
%
|
|
Add (Less):
Amortization of net deferred (gain) loss on de-designated interest
rate swaps
|
(14,570)
|
|
|
(0.33)
|
%
|
|
(11,767)
|
|
|
(0.13)
|
%
|
|
Add: GSE CRT embedded
derivative coupon interest recorded as realized and unrealized
credit derivative income (loss), net
|
5,845
|
|
|
0.12
|
%
|
|
10,650
|
|
|
0.10
|
%
|
|
Add (Less):
Contractual net interest income (expense) on interest rate swaps
recorded as gain (loss) on derivative instruments, net
|
11,924
|
|
|
0.27
|
%
|
|
12,034
|
|
|
0.13
|
%
|
|
Effective net
interest income
|
133,941
|
|
|
2.48
|
%
|
|
157,957
|
|
|
1.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances
The table below presents information related to the Company's
average earning assets, average earning assets yields, average
borrowings and average cost of funds for the following periods.
|
Three Months
Ended
|
|
Six Months
Ended
|
|
$ in
thousands
|
June 30,
2020
|
|
March 31,
2020
|
|
June 30,
2019
|
|
June 30,
2020
|
|
June 30,
2019
|
|
Average earning
assets (1)
|
1,905,555
|
|
|
17,837,749
|
|
|
20,803,193
|
|
|
9,871,653
|
|
|
19,982,393
|
|
|
Average earning asset
yields (2)
|
6.33
|
%
|
|
4.19
|
%
|
|
3.89
|
%
|
|
4.39
|
%
|
|
3.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Average borrowings
(3)
|
981,992
|
|
|
16,531,997
|
|
|
18,908,927
|
|
|
8,756,995
|
|
|
17,983,666
|
|
|
Average cost of funds
(4)
|
0.18
|
%
|
|
2.07
|
%
|
|
2.73
|
%
|
|
1.97
|
%
|
|
2.69
|
%
|
|
(1)
|
Average balances for
each period are based on weighted month-end average earning
assets.
|
|
(2)
|
Average earning asset
yields for each period are calculated by dividing interest income,
including amortization of premiums and discounts, by average
month-end 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 the Company's average borrowings. All percentages are
annualized.
|
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SOURCE Invesco Mortgage Capital Inc.