Invesco Mortgage Capital Inc. - FORM 8-K - EX-99 - May 10, 2011

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_____________________________________________________________________
Press Release
For immediate release
_____________________________________________________________________
Invesco Mortgage Capital Inc. Reports First
Quarter 2011 Financial Results
 
Investor Relations Contact: Donald Ramon         404-439-3228
Media Relations Contact:     Bill Hensel                404-479-2886
 
Atlanta – May 10, 2011 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced results for the quarter ended March 31, 2011.
 
The Company reported net income of $53.7 million, or $1.01 per share (basic and diluted), for the quarter ended March 31, 2011 compared to $40.9 million, or $1.00 per share (basic and diluted), for the quarter ended December 31, 2010.  During the first quarter of 2011, the Company completed a follow-on common stock offering generating net proceeds of $460.1 million.  The 31% increase in quarterly net income was driven by an increase in average earning assets as the Company invested the funds from the follow-on common stock offering from December 2010 and March 2011.
 
The Company also reported its book value per share as of March 31, 2011 was $21.24, compared to $20.49 per share as of December 31, 2010.
 
“The current economic conditions, the steepness of the yield curve, and historically low financing costs continue to provide an outstanding opportunity to invest in securitized mortgage assets,” said Richard King, President and Chief Executive Officer.  “We are pleased that in the first quarter we were able to achieve our goals of maintaining attractive earnings and growing book value.  We also strategically raised capital which was accretive to book value, added scale, and found attractive target assets with the new capital.”

 
 
 



($ in millions, except per share amounts)
 
Q1 ‘11
Q4 ‘10
 
(unaudited)
(unaudited)
Average Earning Assets (at fair value)
$6,413.5
$4,874.9
Average Borrowed Funds
5,406.9
3,921.4
Average Equity
1,156.2
924.1
     
Interest Income
68.5
50.9
Interest Expense
15.6
10.6
Net Interest Income
52.9
40.3
Other Income
5.6
4.8
Operating Expenses
4.8
4.2
Net Income
53.7
40.9
     
Average Portfolio Yield
4.27%
4.18%
Cost of Funds
1.15%
1.09%
Debt to Equity Ratio
3.7
4.1
Return on Average Equity
18.58%
17.69%
Book Value per Share (Diluted)
$21.24
$20.49
Earnings per share (Basic and Diluted)
$1.01
$1.00
Dividend
$1.00
$0.97

Financial Summary
 
The Company’s portfolio of mortgage-backed securities (“MBS”) was $9.3 billion as of March 31, 2011, an increase of $3.7 billion from December 31, 2010.  For the quarter ended March 31, 2011, average earning assets were $6.4 billion which generated interest income of $68.5 million.  This represents an increase of $1.5 billion, or 31%, and $17.6 million, or 35%, respectively, from the fourth quarter of 2010.  The increase was primarily driven by the follow-on common stock offerings completed in December 2010 and March 2011.
 
For the quarter ended March 31, 2011, the Company had average borrowings of approximately $5.4 billion and interest expense including cost of hedging of $15.6 million, compared to $3.9 billion and $10.6 million, respectively, for the fourth quarter of 2010.  The increase in average borrowed funds and interest expense was primarily the result of increasing the size of our investment portfolio.
 
Our average cost of funds was 1.15% and 1.09% for the first quarter of 2011 and fourth quarter of 2010, respectively.  The increase in our cost of funds was primarily the result additional interest expense related to our hedging activities.
 
Operating expenses for the first quarter 2011 totalled $4.8 million compared to $4.2 million for the fourth quarter 2010.  The ratio of operating expenses to average equity in the first quarter of 2011 decreased 0.12% to 1.68% as the Company benefited from improved operating efficiency during the quarter.
 
The Company declared a dividend of $1.00 per share for the first quarter of 2011.  The dividend was paid on April 27, 2011
 
###

 
 
 
 
 
 
 
 
About Invesco Mortgage Capital Inc.
 
Invesco Mortgage Capital Inc. is a real estate investment trust that focuses on financing and managing residential and commercial mortgage-backed securities and mortgage loans. Invesco Mortgage Capital Inc. is externally managed and advised by Invesco Advisers, Inc., a subsidiary of Invesco Ltd. (NYSE: IVZ), a leading independent global investment management company.  Additional information is available at www.invescomortgagecapital.com.
 
Earnings Call
 
Members of the investment community and the general public are invited to listen to the Company’s earnings conference call today, Tuesday, May 10, 2011, 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 May 31, 2011 by calling:
 
866-517-3728 (North America)
203-369-2040 (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 today, 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
  
$ in thousands, except per share data
March 31, 2011
  
December 31, 2010
  
Revenues
        
Interest income
68,536
  
50,945
  
Interest expense
15,578
  
10,652
  
Net interest income
52,958
  
40,293
  
         
Other income (loss)
Gain on sale of investments, net
1,200
  
2,392
  
Equity in earnings and fair value change in unconsolidated limited partnerships
1,858
  
2,388
  
Loss on other-than-temporarily impaired securities
—
  
—
  
Unrealized loss on interest rate swaps
                                     (5)
  
                                           (46)
  
Realized and unrealized credit default swap income
2,532
  
13
  
Total other income
5,585
  
4,747
  
         
Expenses
        
Management fee – related party
3,975
  
2,986
  
General and administrative
868
  
1,174
  
Total expenses
4,843
  
4,160
  
Net income
53,700
  
40,880
  
         
Net income attributable to non-controlling interest
1,452
  
1,466
  
Net income attributable to common shareholders
52,248
  
39,414
  
 
Earnings per share:
        
Net income attributable to common shareholders
   (basic and diluted)
 
1.01
  
 
                1.00
  
Dividends declared per common share
1.00
  
0.97
  
Weighted average number of shares of common stock:
        
    Basic
51,857
  
39,354
  
    Diluted
53,287
  
40,785
  
         








 
 
 

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

$ in thousands, except per share amounts
  
As of
  
ASSETS
  
March 31, 2011
  
December 31, 2010
  
   
(Unaudited)
      
 
Mortgage-backed securities, at fair value
  
9,297,597
  
5,578,333
  
Cash
  
280,244
  
63,552
  
Restricted cash
  
142,245
  
101,144
  
Investment related receivable
  
22,215
  
7,601
  
Investments in unconsolidated limited partnerships, at fair value
  
51,274
  
54,725
  
Accrued interest receivable
  
31,105
  
22,503
  
Derivative Assets, at fair value
  
59,118
  
33,255
  
Other assets
  
1,408
  
1,287
  
Total assets
  
9,885,206
  
5,862,400
  
           
LIABILITIES AND SHAREHOLDERS’ EQUITY
          
Liabilities:
          
Repurchase agreements
  
5,751,161
  
4,344,659
  
Derivative liability, at fair value
  
32,073
  
37,850
  
Dividends and distributions payable
  
51,729
  
49,741
  
Investment related payables
  
2,476,475
  
372,285
  
Accrued interest payable
  
5,389
  
2,579
  
Accounts payable and accrued expenses
  
1,073
  
1,065
  
Due to affiliate
  
4,315
  
3,407
  
Total liabilities
  
8,322,215
  
4,811,586
  
           
Invesco Mortgage Capital Inc. Shareholders’ equity:
          
Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized, 0 shares issued and outstanding
  
—
  
—
  
Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 72,154,375 and 49,854,196 shares issued and outstanding, at March 31, 2011 and December 31, 2010, respectively
  
722
  
499
  
Additional paid in capital
  
1,472,642
  
1,002,809
  
Accumulated other comprehensive income
  
63,263
  
24,015
  
Distributions in excess of earnings
  
(6,228)
  
                                 (8,173)
  
Total Invesco Mortgage Capital Inc. shareholders’ equity
  
1,530,399
  
1,019,150
  
         
Non-controlling interest
  
32,592
  
31,664
  
Total equity
  
1,562,991
  
1,050,814
  
         
Total liabilities and shareholders’ equity
  
9,885,206
  
5,862,400
  




 
 
 
 


Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company’s mortgage-backed securities portfolio as of March 31, 2011:
 
$ in thousands
Principal Balance
  
Unamortized
Premium (Discount)
  
Amortized Cost
  
Unrealized
Gain/
(Loss)
  
Fair
Value
  
Net Weighted Average Coupon (1)
  
Average Yield (2)
Agency RMBS:
                          
15 year fixed-rate
1,922,157
  
103,952
  
2,026,109
  
(9,562)
  
2,016,547
  
4.46%
  
2.95%
30 year fixed-rate
3,744,278
  
253,223
  
3,997,501
  
(2,392)
  
3,995,109
  
5.34%
  
3.84%
ARM
49,054
  
1,415
  
50,469
  
(226)
  
50,243
  
3.89%
  
3.05%
Hybrid ARM
1,054,328
  
12,869
  
1,067,197
  
(3,287)
  
1,063,910
  
3.17%
  
2.97%
Total Agency
6,769,817
  
371,459
  
7,141,276
  
(15,467)
  
7,125,809
  
4.74%
  
3.45%
                           
MBS-CMO
153,265
  
(116,674)
  
36,591
  
3,152
  
39,743
  
4.30%
  
3.04%
Non-Agency MBS
1,863,216
  
(374,846)
  
1,488,370
  
29,260
  
1,517,630
  
4.58%
  
7.97%
CMBS
594,630
  
(4,488)
  
590,142
  
24,273
  
614,415
  
5.26%
  
5.38%
Total
9,380,928
  
(124,549)
  
9,256,379
  
41,218
  
9,297,597
  
4.74%
  
4.30%
_____________________
(1)  Net weighted average coupon (“WAC”) is presented net of servicing and other fees.
(2)  Average yield incorporates future prepayment assumptions.

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”):
 

 
March 31, 2011
  
December 31, 2010
 
Company
  
Cohort
  
Company
  
Cohort
               
15 year Agency RMBS
9.0
  
16.1
  
12.0
  
28.8
30 year Agency RMBS
13.4
  
19.8
  
14.6
  
27.8
Agency Hybrid ARM RMBS
6.4
  
N/A
  
15.8
  
N/A
Non-Agency RMBS
14.0
  
N/A
  
16.0
  
N/A
Overall
11.1
  
N/A
  
12.8
  
N/A


 
 
 

Repurchase Agreements

The following table summarizes the Company’s borrowings by type of investment for the period ended March 31, 2011 and December 31, 2010:

$ in thousands
March 31, 2011
  
December 31, 2010
Repurchase Agreements
Amount Outstanding
Weighted Average Interest Rate
  
Amount Outstanding
Weighted Average
Interest Rate
Agency RMBS
4,482,851
0.29%
  
3,483,440
0.33%
Non-Agency RBS
788,559
1.54%
  
459,979
1.76%
CMBS
479,751
1.33%
  
401,240
1.30%
Total Borrowings
5,751,161
 
0.55%
 
4,344,659
 
0.57%


Interest Rate Hedges

The following table summarizes our hedging activity as of March 31, 2011:

Remaining Interest Rate Swap Term
  
Notional
  
Average
  
Average
Amount
Fixed Pay
Maturity
$ in thousands
Rate
(Years)
 1 year or less
  
-
   
-
  
-
 Greater than 1 year and less than 3 years
  
475,000
  
1.88%
  
1.9
 Greater than 3 years and less than 5 years
  
1,500,000
  
2.04%
  
4.3
 Greater than 5 years
  
             3,950,000
  
2.45%
  
5.9
Total
  
5,925,000
  
2.30%
  
5.1

Approximately $3.6 billion of the total $5.9 billion of the swap notional amount on March 31, 2011 were forward-starting interest rate swaps with effective dates beyond March 31, 2011.  Additionally, we had approximately $2.5 billion of unsettled securities which would have increased our total outstanding borrowing balance if the purchases would have been settled with repurchase agreements.

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