ATLANTA,: Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced financial results for the quarter ended December 31, 2020.
Reported net income per common share
$0.59 compared to $0.53 per common share in Q3 2020
Increased core earnings* per common share
$0.10 compared to $0.06 per common share in Q3 2020
Raised common stock dividend
$0.08 compared to $0.05 per common share in Q3 2020
Increased book value per common share**
$3.86 compared to $3.47 per common share at Q3 2020
Generated economic return***
13.5% in Q4 2020 compared to 11.0% in Q3 2020
Update from John Anzalone, Chief Executive Officer "We are pleased to announce core earnings of $0.10 per common share for the fourth quarter of 2020. During the quarter, we largely completed our portfolio reallocation to Agency residential mortgage-backed securities ("Agency RMBS") following the market disruption associated with the COVID-19 pandemic. Approximately 98% of our $8.2 billion investment portfolio was invested in Agency RMBS at year end. We also maintained a sizeable balance of unrestricted cash and unencumbered investments of $744.8 million as of December 31, 2020. "Valuations of our Agency RMBS benefited from strong demand by the Federal Reserve and commercial banks for lower coupon mortgages despite elevated supply during the quarter. The strong performance of Agency RMBS along with continued investor demand for our remaining credit assets contributed to an 11.2% increase in book value per common share. Our higher book value per common share combined with our recently increased common stock dividend of $0.08 per share produced an economic return of 13.5% for the quarter. Our outlook for Agency RMBS remains constructive, as the asset class offers an attractive return profile, benefits from substantial liquidity and funding and is supported by ongoing purchases by the Federal Reserve. We raised an additional $103.1 million in common equity earlier this month that was deployed into Agency RMBS and will allow us to build upon our success in restoring core earnings." * Core earnings (and by calculation, core earnings per common share) are non-Generally Accepted Accounting Principles ("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.
** Book value per common share is calculated as total stockholders' equity less the liquidation preference of the Company's 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.
*** Economic return for the quarter ended December 31, 2020 is defined as the change in book value per common share from September 30, 2020 to December 31, 2020 of $0.39; plus dividends declared of $0.08 per common share; divided by the September 30, 2020 book value per common share of $3.47. Economic return for quarter ended September 30, 2020 is defined as the change in book value per common share from June 30, 2020 to September 30, 2020 of $0.30; plus dividends declared of $0.05 per common share; divided by the June 30, 2020 book value per common share of $3.17. Key performance indicators for the quarters ended December 31, 2020 and September 30, 2020 are summarized in the table below.
($ in millions, except share amounts)
Q4 '20
Q3 '20
Variance
Average Balances
(unaudited)
(unaudited)
Average earning assets (at amortized cost)
$7,697.0$4,186.5$3,510.5
Average borrowings
$6,879.9$3,353.0$3,526.9
Average stockholders' equity*
$1,021.6$910.3$111.3U.S. GAAP Financial Measures
Total interest income
$35.9$27.4$8.5
Total interest expense
($2.5)
($1.4)
($1.1)
Net interest income
$38.3$28.9$9.4
Total expenses
$6.4$5.9$0.5
Net income attributable to common stockholders
$111.6$96.9$14.7
Average earning asset yields
1.86
%
2.62
%
(0.76)
%
Average cost of funds
(0.14)
%
(0.17)
%
0.03
%
Average net interest rate margin
2.00
%
2.79
%
(0.79)
%
Period-end weighted average asset yields**
1.99
%
2.35
%
(0.36)
%
Period-end weighted average cost of funds
0.21
%
0.23
%
(0.02)
%
Period-end weighted average net interest rate margin
1.78
%
2.12
%
(0.34)
%
Book value per common share***
$3.86$3.47$0.39
Earnings per common share (basic)
$0.59$0.53$0.06
Earnings per common share (diluted)
$0.59$0.53$0.06
Debt-to-equity ratio
5.3
x
4.3
x
1.0
x
Non-GAAP Financial Measures****
Core earnings
$18.6$11.3$7.3
Effective interest income
$35.9$27.9$8.0
Effective interest expense
$6.9$2.4$4.5
Effective net interest income
$29.0$25.5$3.5
Effective yield
1.86
%
2.67
%
(0.81)
%
Effective cost of funds
0.40
%
0.29
%
0.11
%
Effective interest rate margin
1.46
%
2.38
%
(0.92)
%
Core earnings per common share
$0.10$0.06$0.04
Economic debt-to-equity ratio
6.6
x
5.1
x
1.5
x
* 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 stockholders' equity less the liquidation preference of the Company's 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. **** Core earnings (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 economic debt-to-equity ratio are non-GAAP financial measures. Refer to the section entitled "Non-GAAP Financial Measures" for important disclosures and a reconciliation to the most comparable U.S. GAAP measures of net income (loss) attributable to common stockholders (and by calculation, basic earnings (loss) per common share), total interest 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) and debt-to-equity ratio.
Financial Summary
Net income attributable to common stockholders for the fourth quarter of 2020 was $111.6 million, up $14.7 million compared to $96.9 million for the third quarter of 2020. Higher net income attributable to common stockholders was primarily due to a $9.5 million increase in net interest income and a $5.7 million increase in other income. The change in other income was driven by an increase of $53.8 million in net gains on derivatives, partially offset by a decrease of $30.3 million in net gains on investments and a one-time gain on settlement of a debt obligation of $16.0 million in the third quarter. Net gains on derivatives were driven by an increase in interest rates as the benchmark 10 year U.S.Treasury note rose 23 basis points to 0.91% as of December 31, 2020. Book value per common share rose 11.2% for the fourth quarter of 2020 to $3.86 compared to $3.47 in the third quarter reflecting Agency RMBS spread tightening during the quarter. Book value per common share primarily benefited from a higher allocation to lower coupon 30-year Agency RMBS specified pools whose valuations rose due to persistent Federal Reserve and commercial bank demand for similar securities during the quarter. Total average assets increased to $7.7 billion from $4.2 billion in the third quarter of 2020, and total average borrowings increased to $6.9 billion from $3.4 billion in the third quarter of 2020. Average assets and average borrowings increased as the Company deployed proceeds from the sale of unencumbered credit assets and $73.7 million raised through the issuance of common shares under the Company's at-the-market programs into Agency RMBS and increased leverage. During the fourth quarter of 2020, the Company generated $18.6 million in core earnings, an increase of $7.3 million (65.1%) over the third quarter of 2020. Higher core earnings were driven by a $6.3 million increase in to-be-announced securities forward contract ("TBA") dollar roll income. Given the attractiveness of TBAs, the Company increased its allocation to TBAs in the fourth quarter. Average net interest margin rate decreased 79 basis points to 2.00% in the fourth quarter of 2020 primarily due to lower average earning asset yields. Average earning asset yield decreased 76 basis points to 1.86% in the fourth quarter of 2020 primarily due to a change in portfolio composition. The Company's Agency RMBS portfolio primarily consists of 2.0% to 2.5% coupon 30 year fixed-rate securities as of December 31, 2020. Average cost of funds was (0.14%) in the fourth quarter of 2020 compared to (0.17%) during the third quarter. While average borrowings rose during the fourth quarter, the impact on cost of funds was mostly offset by higher amortization of net deferred gains on de-designated interest rate swaps. The Company's debt-to-equity ratio was 5.3x as of December 31, 2020 compared to 4.3x as of September 30, 2020 and economic debt-to-equity ratio was 6.6x as of December 31, 2020 compared to 5.1x as of September 30, 2020. Higher leverage as of year end reflects a change in asset mix to a higher portfolio concentration in Agency securities. Total expenses for the fourth quarter of 2020 increased to approximately $6.4 million compared to $5.9 million for the third quarter of 2020 primarily due to higher management fees. The ratio of annualized total expenses to average stockholders' equity* decreased to 2.49% compared from 2.61% for the third quarter of 2020 due to higher stockholders' equity in the fourth quarter. As previously announced on December 28, 2020, the Company declared a common stock dividend of $0.08 per share paid on January 26, 2021 to its stockholders of record as of January 12, 2021. The Company declared the following dividends on February 19, 2021: a Series A Preferred Stock dividend of $0.4844 per share payable on April 26, 2021 to its stockholders of record as of April 1, 2021; a Series B Preferred Stock dividend of $0.4844 per share payable on March 29, 2021 to its stockholders of record as of March 5, 2021; and a Series C Preferred Stock dividend of $0.46875 per share payable on March 29, 2021 to its stockholders of record on March 5, 2021. * The ratio of annualized total expenses to average stockholders' equity is calculated as the annualized sum of management fees plus general and administrative expenses divided by average stockholders' equity. About Invesco Mortgage Capital Inc. Invesco Mortgage Capital Inc. is a real estate investment trust that primarily focuses on investing in, financing and managing mortgage-backed securities and other mortgage-related assets. Invesco Mortgage Capital Inc. is externally managed and advised by Invesco Advisers, Inc., a registered investment adviser and an indirect wholly-owned subsidiary of Invesco Ltd., a leading independent global investment management firm. |
