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Invesco Mortgage Capital Inc. Reports Fourth Quarter 2012 Financial Results

2013-02-05 16:05 ET - News Release

ATLANTA, Feb. 5, 2013 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced results for the quarter ended December 31, 2012.

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

The Company reported net income of $90.6 million, or $0.77 per common share (basic and diluted), for the quarter ended December 31, 2012 (after deducting the preferred dividend of $2.7 million) compared to $84.1 million, or $0.72 per common share (basic and diluted), for the quarter ended September 30, 2012.  The Company also reported its book value per common share as of December 31, 2012 was $20.83, compared to $20.93 per common share as of September 30, 2012.

"Our fourth quarter strategy was to increase our allocation to credit assets and we accomplished this while delivering strong earnings per share of $0.77," said Richard King, President and Chief Executive Officer.  "During 2012, we successfully completed our goal of improving our book value while maintaining a stable dividend. The improving trend in the housing market should create great opportunities, and we believe the repositioning of the portfolio combined with our recent capital raise have us well positioned for 2013."


 

($ in millions, except per share amounts)


Q4 '12

Q3 '12


(unaudited)

(unaudited)

Average Earning Assets (at amortized costs)

$17,776.3

$16,955.1

Average Borrowed Funds

15,822.1

14,440.3

Average Equity

$2,482.5

$2,329.9




Interest Income

$145.4

$140.5

Interest Expense

65.1

60.3

Net Interest Income

80.3

80.2

Other Income

23.2

16.6

Operating Expenses

10.2

10.0

Net Income

93.3

86.8

Preferred Dividend

2.7

2.7

Net Income after Preferred Dividend

$90.6

$84.1




Average Portfolio Yield

3.27%

3.31%

Average Cost of Funds

1.65%

1.67%

Debt to Equity Ratio

6.1

5.8

Return on Average Equity

14.60%

14.44%

Book Value per Common Share (Diluted)

$20.83

$20.93

Earnings per Common share (Basic and Diluted)

$0.77

$0.72

Dividend per Common share

$0.65

$0.65

Dividend per Preferred share

$0.4844

$0.4790

 

Financial Summary

The Company's portfolio of mortgage-backed securities ("MBS") was $18.5 billion as of December 31, 2012, an increase of $0.2 billion from September 30, 2012.  For the quarter ended December 31, 2012, average earning assets were $17.8 billion, representing an increase of $0.8 billion from September 30, 2012.  The portfolio generated interest income of $145.4 million, which reflects an increase of $4.9 million from September 30, 2012. 

For the quarter ended December 31, 2012, the Company had average borrowings of approximately $15.8 billion and interest expense, including cost of hedging, of $65.1 million, compared to $14.4 billion and $60.3 million, respectively, for the third quarter of 2012.  Our average cost of funds was 1.65% and 1.67% for the fourth quarter of 2012 and the third quarter of 2012, respectively. 

Operating expenses for the fourth quarter of 2012 totalled $10.2 million, compared to $10.0 million for the third quarter of 2012.  The ratio of operating expenses to average equity in the fourth quarter of 2012 decreased 0.08% to 1.64%.

The Company declared a common stock dividend of $0.65 per common share for the fourth quarter of 2012.  The dividend was paid on January 28, 2013.

The Company declared a preferred stock dividend of $0.4844 per preferred share for the fourth quarter of 2012.  The dividend was paid on January 25, 2013.

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 Wednesday, February 6, 2013, at 8:30 a.m. ET, by calling one of the following numbers:

US/Canada Toll Free:  

888-942-8507

International:           

415-228-4839

Passcode:          

Invesco

An audio replay will be available until 5:00 pm ET on February, 20, 2013 by calling:

888-568-0862 (North America) or 203-369-3485 (International).

The presentation slides that will be reviewed during the call will be available on the Company's website at www.invescomortgagecapital.com.

Cautionary Notice Regarding Forward-Looking Statements

This press release, and comments made in the associated conference call, may include statements and information that constitute "forward-looking statements" within the meaning of the U.S. securities laws.  Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance. In addition, words such as "will," "anticipates," "expects" and "plans," as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge investors to carefully consider the risks identified under the captions "Risk Factors," "Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the Securities and Exchange Commission's website at www.sec.gov

All written or oral forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice.  We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.


 

 

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)












Three Months Ended


Year Ended





December 31,


December 31,

$ in thousands, except per share data

2012


2011


2012


2011

















Revenues













Interest income


145,389



137,545



566,830



453,352


Interest expense


65,093



55,004



237,405



155,241


Net interest income


80,296



82,541



329,425



298,111

















Other income













Gain on sale of investments


23,236



2,517



48,215



10,959


Equity in earnings  and fair value change in unconsolidated













   ventures


937



563



7,169



3,301


Unrealized loss on interest rate swaps and swaptions


(1,382)



(109)



(4,232)



(764)


Realized and unrealized credit default swap income


420



659



3,115



5,308


Total other income


23,211



3,630



54,267



18,804

















Expenses













Management fee – related party


9,285



8,647



35,658



26,259


General and administrative


892



1,003



4,026



3,859


Total expenses


10,177



9,650



39,684



30,118


Net income


93,330



76,521



344,008



286,797


Net income attributable to non-controlling interest


1,098



934



4,123



4,882


Net income attributable to Invesco Mortgage Capital Inc.


92,232



75,587



339,885



281,915


Dividends to preferred shareholders


2,713



-



5,395



-


Net income attributable to common shareholders


89,519



75,587



334,490



281,915

















Earnings per share:













Net income attributable to common shareholders













   (basic/diluted)


0.77



0.66



2.89



3.27


Dividends declared per common share


0.65



0.65



2.60



3.42


Weighted average number of shares of common stock:












               Basic



116,016



115,392



115,559



86,365

               Diluted



117,472



116,835



117,012



87,804














































INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS



$ in thousands, except share and per share amounts

As of



December 31,


December 31,

ASSETS

2012


2011










(Unaudited)











Mortgage-backed securities, at fair value


18,470,563



14,214,149

Cash and cash equivalents


286,474



197,224

Restricted cash


12,371



74,496

Investment related receivable


41,429



160,424

Investments in unconsolidated ventures, at fair value


35,301



68,793

Accrued interest receivable


62,977



54,167

Derivative assets, at fair value


6,469



1,339

Other assets


11,547



1,575


Total assets


18,927,131



14,772,167








LIABILITIES AND EQUITY






Liabilities:






Repurchase agreements


15,720,460



12,253,038

Derivative liability, at fair value


436,440



396,780

Dividends and distributions payable


79,165



75,933

Investment related payable


76,086



107,032

Accrued interest payable


15,275



12,377

Accounts payable and accrued expenses


877



556

Due to affiliate


9,308



9,038


Total liabilities


16,337,611



12,854,754








Equity:






Preferred Stock, par value $0.01 per share; 50,000,000 shares







authorized, 7.75% series A cumulative redeemable, $25 liquidation







preference, 5,600,000 and no shares issued and outstanding at







December 31, 2012 and 2011, respectively


135,362



-

Common Stock: par value $0.01 per share; 450,000,000 shares







authorized, 116,195,500 and 115,395,695 shares issued and







outstanding, at December 31, 2012 and 2011, respectively


1,162



1,154

Additional paid in capital


2,316,290



2,299,543

Accumulated other comprehensive income (loss)


86,436



(393,291)

Retained earnings (distributions in excess of earnings)


18,848



(15,068)


Total shareholders' equity


2,558,098



1,892,338








Non-controlling interest


31,422



25,075


Total equity


2,589,520



1,917,413









Total liabilities and equity


18,927,131



14,772,167









Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company's mortgage-backed securities portfolio as of December 31, 2012:

 
















Period-














Net  


end


Quarterly






Unamortized




Unrealized




Weighted  


Weighted  


Weighted  




Principal


Premium


Amortized


Gain/


Fair


Average


Average  


Average  

$ in thousands

Balance


(Discount)


Cost


(Loss), net


Value


Coupon (1)


Yield (2)


Yield (3)

Agency RMBS:

















15 year fixed-rate

 1,964,999 


102,058


2,067,057


63,839


2,130,896


4.09 %


 2.37 % 


 2.37 % 


30 year fixed-rate

 9,168,196 


601,592


9,769,788


238,949


10,008,737


4.21 %


 2.89 % 


 2.88 % 


ARM

 109,937 


3,464


113,401


2,365


115,766


 3.15 % 


 2.06 % 


 2.02 % 


Hybrid ARM

 556,790 


13,493


570,283


16,885


587,168


 3.19 % 


 2.18 % 


 2.22 % 



Total Agency pass-

through

 11,799,922 


720,607


12,520,529


322,038


12,842,567


 4.13 % 


 2.77 % 


 2.75 % 




















Agency-CMO(4)

 1,322,043 


(819,530)


502,513


1,926


504,439


 2.89 % 


 2.35 % 


 1.51 % 


Non-Agency RMBS(5)

 3,339,683 


(308,885)


3,030,798


48,238


3,079,036


 4.20 % 


 4.61 % 


 4.80 % 


CMBS

 1,868,928 


24,070


1,892,998


151,523


2,044,521


 5.27 % 


 4.96 % 


 4.82 % 

Total

 18,330,576 


(383,738)


17,946,838


523,725


18,470,563


 4.17 % 


 3.30 % 


 3.27 % 





































(1) Net weighted average coupon as of December 31, 2012 ("WAC") is presented net of servicing and other fees.




(2) Average yield based on amortized cost as of December 31, 2012 incorporates future prepayment and loss assumptions.




(3) Average yield based on average amortized cost for the three months ended December 31, 2012 incorporates future prepayment and loss assumptions.




(4) Included in the Agency-CMO are interest only securities which represent 14.1% of the balance based on fair value.




(5) The non-Agency RMBS held by the Company is 79.2% variable rate, 15.5% fixed rate, and 5.3% floating rate based on fair value.


















 

 

Constant Prepayment Rates (CPR)

The CPR of our portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income. The following table shows the three month CPR for our RMBS compared to bonds with similar characteristics ("Cohorts"):

 


December 31, 2012


September 30, 2012


Company


Cohort


Company


Cohort









15 year Agency RMBS

17.4


26.5


14.6


23.4

30 year Agency RMBS

11.6


20.9


13.1


20.7

Agency Hybrid ARM RMBS

28.5


NA


20.0


NA

Non-Agency RMBS

17.7


NA


16.2


NA

Overall

14.6


NA


14.3


NA









 

 

Repurchase Agreements

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

 


$ in thousands


December 31, 2012


December 31, 2011










Weighted







Weighted








Weighted


Average





Weighted


Average








Average


Remaining





Average


Remaining





Amount


Interest


Maturity


Amount


Interest


Maturity





Outstanding


Rate


(Days)


Outstanding


Rate


(Days)



Agency RMBS



11,713,565


0.48 %


16



9,491,538


0.38 %


22



Non-Agency RMBS



2,450,960


1.75 %


23



1,916,620


1.79 %


22



CMBS



1,555,935


1.51 %


18



844,880


1.55 %


22



Total



15,720,460


0.78 %


17



12,253,038


0.68 %


22


 

 

Interest Rate Hedges

The following table summarizes our hedging activity as of December 31, 2012:

 

$ in thousands







Fixed Interest Rate



Counterparty

Notional

Maturity Date


in Contract



The Bank of New York Mellon


100,000


5/24/2013



1.83%



The Bank of New York Mellon


200,000


6/15/2013



1.73%



SunTrust Bank


100,000


7/15/2014



2.79%



Deutsche Bank AG


200,000


1/15/2015



1.08%



Deutsche Bank AG


250,000


2/15/2015



1.14%



Credit Suisse International


100,000


2/24/2015



3.26%



Credit Suisse International


100,000


3/24/2015



2.76%



Wells Fargo Bank, N.A.


100,000


7/15/2015



2.85%



Wells Fargo Bank, N.A.


50,000


7/15/2015



2.44%



Morgan Stanley Capital Services, Inc.


300,000


1/24/2016



2.12%



The Bank of New York Mellon


300,000


1/24/2016



2.13%



Morgan Stanley Capital Services, Inc.


300,000


4/5/2016



2.48%



Citibank, N.A.


300,000


4/15/2016



1.67%



The Bank of New York Mellon


500,000


4/15/2016



2.24%



Credit Suisse International


500,000


4/15/2016



2.27%



JPMorgan Chase Bank, N.A.


500,000


5/16/2016



2.31%



Goldman Sachs Bank USA


500,000


5/24/2016



2.34%



Wells Fargo Bank, N.A.


250,000


6/15/2016



2.67%



Goldman Sachs Bank USA


250,000


6/15/2016



2.67%



JPMorgan Chase Bank, N.A.


500,000


6/24/2016



2.51%



Citibank, N.A.


500,000


10/15/2016



1.93%



Deutsche Bank AG


150,000


2/5/2018



2.90%



Morgan Stanley Capital Services, Inc.


100,000


4/5/2018



3.10%



JPMorgan Chase Bank, N.A.


200,000


5/15/2018



2.93%



UBS AG (1)


500,000


5/24/2018



1.10%



The Royal Bank of Scotland Plc (2)


500,000


9/5/2018



1.04%



Wells Fargo Bank, N.A.


200,000


3/15/2021



3.14%



Citibank, N.A.


200,000


5/25/2021



2.83%



HSBC Bank USA, National Association (3)


250,000


6/5/2023



1.91%



Total


8,000,000





2.13%













(1) Forward start date of May 2013










(2) Forward start date of September 2013










(3) Forward start date of  June 2013










 

 


Average Balances

The following table shows the average balances for the three and twelve months ended December 31, 2012 and 2011:

 




Three Months Ended


Year Ended




December 31,


December 31,


$ in thousands

2012


2011


2012


2011


Average Balances*:













Agency RMBS:














15 year fixed-rate, at amortized cost


2,114,987



2,393,468



2,302,218



2,171,988



30 year fixed-rate, at amortized cost


9,665,370



6,216,010



8,395,560



4,547,867



ARM, at amortized cost


116,608



100,661



150,377



86,177



Hybrid ARM, at amortized cost


591,081



1,309,862



1,028,432



998,933



MBS-CMO, at amortized cost


510,292



141,132



465,469



91,861


Non-Agency RMBS, at amortized cost


2,922,411



2,539,250



2,524,635



2,057,477


CMBS, at amortized cost


1,855,546



1,313,117



1,461,359



1,006,164


Average MBS portfolio


17,776,295



14,013,500



16,328,050



10,960,467
















Average Portfolio Yields: (1)













Agency RMBS:














15 year fixed-rate


2.37%



2.75%



2.54%



2.96%



30 year fixed-rate


2.88%



3.52%



3.12%



3.59%



ARM


2.02%



2.90%



2.51%



2.99%



Hybrid ARM


2.22%



2.49%



2.60%



2.58%



MBS-CMO


1.51%



1.32%



2.02%



3.39%


Non-Agency RMBS


4.80%



6.05%



5.16%



6.79%


CMBS


4.82%



5.69%



5.22%



5.44%


Average MBS portfolio


3.27%



3.93%



3.47%



4.14%
















Average Borrowings*:














Agency RMBS


12,010,877



9,179,788



11,161,176



7,146,066



Non-Agency RMBS


2,313,014



1,994,379



1,902,754



1,536,245



CMBS


1,498,221



952,777



1,108,438



791,212


Total borrowed funds


15,822,112



12,126,944



14,172,368



9,473,523


Maximum borrowings during the period (2)


16,227,024



12,253,038



16,227,024



12,253,038
















Average Cost of Funds: (3)














Agency RMBS


0.45%



0.32%



0.39%



0.27%



Non-Agency RMBS


1.71%



1.67%



1.76%



1.47%



CMBS


1.50%



1.53%



1.55%



1.35%



Unhedged cost of funds


0.74%



0.64%



0.67%



0.56%



Hedged cost of funds


1.65%



1.81%



1.68%



1.64%
















Average Equity: (4)


2,482,487



1,921,684



2,262,851



1,625,794


Average debt/equity ratio (average during period)


6.4x



6.3x



6.3x



5.8x


Debt/equity ratio (at period end)


6.1x



6.4x



6.1x



6.4x
















* Average amounts for each period are based on weighted month end balances.  For the three and twelve months ended December 31, 2012, the average balances are presented on an amortized cost basis.  Prior periods have been adjusted accordingly for comparative purposes.



(1) Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by our average of the amortized cost of the investments.  All yields are annualized.



(2) Amount represents the maximum borrowings at month-end during each of the respective periods.



(3) Average cost of funds is calculated by dividing interest expense, by our average borrowings.



(4) Average equity is calculated based on a weighted balance basis.

















 

 

SOURCE Invesco Mortgage Capital Inc.

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