PR Newswire
ATLANTA, Aug. 3, 2023
ATLANTA, Aug. 3, 2023 /PRNewswire/ -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced financial results for the quarter ended June 30, 2023.
- Net loss per common share of $0.03 compared to net income of $0.39 in Q1 2023
- Earnings available for distribution per common share(1) of $1.45 compared to $1.50 in Q1 2023
- Common stock dividend of $0.40 per common share, unchanged from Q1 2023
- Book value per common share(2) of $11.98 compared to $12.61 as of March 31, 2023
- Economic return(3) of (1.8)% compared to 1.7% in Q1 2023
Update from John Anzalone, Chief Executive Officer
"Agency RMBS performance improved during the second quarter as investor appetite for risk assets increased given greater confidence that the U.S. economy may avoid a recession. Lower coupon valuations rebounded from poor performance in the first quarter as concerns regarding regional banking stability dissipated, while higher coupon valuations benefited to a lesser extent from the modest decline in interest rate volatility. However, higher interest rates and a faster than expected pace of sales from the FDIC negatively impacted our book value, due in part to a decline in premiums on our specified pool investments. Against this backdrop, our book value per common share ended the quarter at $11.98, representing a decline of 5.0% from March 31st, and when combined with our $0.40 common dividend produced an economic return of (1.8)% for the quarter.
"Earnings available for distribution ("EAD") for the second quarter remained strong at $1.45 per common share. EAD is well supported and is expected to continue to benefit from our hedging strategy, as borrowing costs are hedged by low-cost, pay-fixed swaps with a weighted average maturity of over seven years.
"Our debt-to-equity ratio ended the second quarter at 5.9x, up marginally from 5.8x as of March 31st. As of the end of the quarter, substantially all of our $5.5 billion investment portfolio was invested in Agency RMBS, and we maintained a sizeable balance of unrestricted cash and unencumbered investments totaling $492.3 million.
"We believe the conclusion of the Federal Reserve's tightening cycle will result in a reduction of interest rate volatility and, when combined with compelling valuations and favorable funding conditions, will support an attractive investment environment for Agency RMBS in the second half of 2023."
(1) Earnings available for distribution (and by calculation, earnings available for distribution per common share) is a non-Generally Accepted Accounting Principles ("GAAP") financial measure. Refer to the section entitled "Non-GAAP Financial Measures" for important disclosures and a reconciliation to the most comparable U.S. GAAP measure. |
(2) Book value per common share is calculated as total stockholders' equity less the liquidation preference of the Company's Series B Preferred Stock and Series C Preferred Stock ($112.5 million and $194.3 million as of June 30, 2023, respectively, and $113.4 million and $195.4 million as of March 31, 2023, respectively), divided by total common shares outstanding. |
(3) Economic return for the quarter ended June 30, 2023 is defined as the change in book value per common share from March 31, 2023 to June 30, 2023 of ($0.63); plus dividends declared of $0.40 per common share; divided by the March 31, 2023 book value per common share of $12.61. Economic return for the quarter ended March 31, 2023 is defined as the change in book value per common share from December 31, 2022 to March 31, 2023 of ($0.18); plus dividends declared of $0.40 per common share; divided by the December 31, 2022 book value per common share of $12.79. |
Key performance indicators for the quarters ended June 30, 2023 and March 31, 2023 are summarized in the table below.
($ in millions, except share amounts) | Q2 2023 | Q1 2023 | Variance |
Average Balances | (unaudited) | (unaudited) | |
Average earning assets (at amortized cost) | $5,285.8 | $5,245.3 | $40.5 |
Average borrowings | $4,791.7 | $4,737.5 | $54.2 |
Average stockholders' equity (1) | $833.5 | $847.5 | ($14.0) |
U.S. GAAP Financial Measures | |||
Total interest income | $71.4 | $69.3 | $2.1 |
Total interest expense | $59.0 | $49.7 | $9.3 |
Net interest income | $12.4 | $19.6 | ($7.2) |
Total expenses | $5.1 | $5.1 | $0.0 |
Net income (loss) attributable to common stockholders | ($1.4) | $15.6 | ($17.0) |
Average earning asset yields | 5.41 % | 5.28 % | 0.13 % |
Average cost of funds | 4.93 % | 4.20 % | 0.73 % |
Average net interest rate margin | 0.48 % | 1.08 % | (0.60) % |
Period-end weighted average asset yields (2) | 5.24 % | 5.24 % | 0.00 % |
Period-end weighted average cost of funds | 5.21 % | 4.91 % | 0.30 % |
Period-end weighted average net interest rate margin | 0.03 % | 0.33 % | (0.30) % |
Book value per common share (3) | $11.98 | $12.61 | ($0.63) |
Earnings (loss) per common share (basic) | ($0.03) | $0.39 | ($0.42) |
Earnings (loss) per common share (diluted) | ($0.03) | $0.39 | ($0.42) |
Debt-to-equity ratio | 5.9x | 5.8x | 0.1x |
Non-GAAP Financial Measures(4) | |||
Earnings available for distribution | $61.5 | $59.3 | $2.2 |
Effective interest expense | ($1.2) | ($0.2) | ($1.0) |
Effective net interest income | $72.6 | $69.5 | $3.1 |
Effective cost of funds | (0.10) % | (0.02) % | (0.08) % |
Effective interest rate margin | 5.51 % | 5.30 % | 0.21 % |
Earnings available for distribution per common share | $1.45 | $1.50 | ($0.05) |
Economic debt-to-equity ratio | 5.9x | 5.8x | 0.1x |
(1) Average stockholders' equity is calculated based on the weighted month-end balance of total stockholders' equity excluding equity attributable to preferred stockholders. |
(2) Period-end weighted average asset yields are based on amortized cost as of period-end and incorporate future prepayment and loss assumptions when appropriate. |
(3) Book value per common share is calculated as total stockholders' equity less the liquidation preference of the Company's Series B Preferred Stock and Series C Preferred Stock ($112.5 million and $194.3 million as of June 30, 2023, respectively, and $113.4 million and $195.4 million as of March 31, 2023, respectively), divided by total common shares outstanding. |
(4) Earnings available for distribution (and by calculation, earnings available for distribution 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 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 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 loss attributable to common stockholders for the second quarter of 2023 was $1.4 million compared to net income attributable to common stockholders of $15.6 million for the first quarter of 2023. The change in net income (loss) attributable to common stockholders was primarily driven by a $99.7 million net loss on investments in the second quarter compared to a $52.0 million net gain on investments in the first quarter and $12.4 million of net interest income in the second quarter compared to $19.6 million in the first quarter, which was partially offset by a $96.6 million net gain on derivatives in the second quarter compared to a $44.9 million net loss on derivatives in the first quarter.
Earnings available for distribution increased to $61.5 million for the second quarter of 2023 compared to $59.3 million for the first quarter of 2023 primarily due to a $3.1 million increase in effective net interest income. The increase in effective net interest income was primarily driven by a $9.0 million increase in contractual net interest income on interest rate swaps that was partially offset by a $7.2 million decrease in net interest income.
Book value per common share decreased 5.0% during the second quarter of 2023 to $11.98 as higher interest rates and elevated interest rate volatility pressured valuations lower on higher coupon Agency RMBS and led to a decline in premiums on the Company's specified pool holdings. Book value is estimated to be between $11.61 and $12.09 per common share as of July 31, 2023.(1)
Total average earning assets and total average borrowings were relatively unchanged in the second quarter of 2023 compared to the first quarter of 2023 with average earning assets increasing $40.5 million to $5.3 billion and average borrowings increasing $54.2 million to $4.8 billion.
Average net interest rate margin decreased 60 basis points to 0.48% in the second quarter of 2023 compared to the first quarter of 2023. Average earning asset yields increased 13 basis points to 5.41% in the second quarter compared to the first quarter primarily due to an increase in net discount accretion on the Company's Agency RMBS given faster prepayment speeds during the quarter. Average cost of funds increased 73 basis points to 4.93% in the second quarter compared to the first quarter reflecting increases in the Federal Funds target interest rate. Effective interest rate margin, which includes the impact of contractual net interest income on the Company's interest rate swaps and excludes the impact of amortization of net deferred gains on de-designated interest rate swaps, increased by 21 basis points to 5.51% in the second quarter compared to the first quarter.
The Company's debt-to-equity ratio and economic debt-to-equity ratio were 5.9x as of June 30, 2023 compared to 5.8x as of March 31, 2023, reflecting the decline in asset valuations.
Total expenses for the second and first quarter of 2023, consisting of management fees and general and administrative expenses, were approximately $5.1 million. The ratio of annualized total expenses to average stockholders' equity(2) increased to 2.46% in the second quarter from 2.39% in the first quarter primarily due to a lower average stockholders' equity base.
The Company sold 2.9 million shares of common stock for net proceeds of $31.0 million during the second quarter through its at-the-market program.
As previously announced on June 21, 2023, the Company declared a common stock dividend of $0.40 per share paid on July 27, 2023 to its stockholders of record as of July 3, 2023. The Company declared the following dividends on August 2, 2023: a Series B Preferred Stock dividend of $0.4844 per share and a Series C Preferred Stock dividend of $0.46875 per share payable on September 27, 2023 to its stockholders of record on September 5, 2023.
(1) Book value per common share is adjusted to exclude a pro rata portion of the current quarter's common stock dividend (which for purposes of this calculation is assumed to be the same as the previous quarter) and is calculated as total equity less the liquidation preference of Series B Preferred Stock ($112.1 million) and Series C Preferred Stock ($193.1 million), divided by total common shares outstanding of 44.6 million as of July 31, 2023. |
(2) 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.
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 4, 2023, at 9:00 a.m. ET, by calling one of the following numbers:
North America Toll Free: 888-982-7409
International: 1-212-287-1625
Passcode: Invesco
An audio replay will be available until 5:00 pm ET on August 18, 2023 by calling:
800-839-1174 (North America) or 1-203-369-3029 (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 our views on the risk positioning of our portfolio, domestic and global market conditions (including the Agency RMBS and residential and commercial real estate market), the market for our target assets, our financial performance, including our earnings available for distribution, economic return, comprehensive income and changes in our book value, our intention and ability to pay dividends, 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.
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | |||||||||
Three Months Ended | Six Months Ended | ||||||||
$ in thousands, except share data | June 30, | March 31, | June 30, | June 30, | June 30, | ||||
Interest income | |||||||||
Mortgage-backed and other securities | 71,428 | 69,287 | 43,994 | 140,715 | 85,631 | ||||
Commercial loan | — | — | 561 | — | 1,098 | ||||
Total interest income | 71,428 | 69,287 | 44,555 | 140,715 | 86,729 | ||||
Interest expense | |||||||||
Repurchase agreements | 59,022 | 49,726 | 3,455 | 108,748 | 1,351 | ||||
Total interest expense | 59,022 | 49,726 | 3,455 | 108,748 | 1,351 | ||||
Net interest income | 12,406 | 19,561 | 41,100 | 31,967 | 85,378 | ||||
Other income (loss) | |||||||||
Gain (loss) on investments, net | (99,679) | 51,956 | (324,876) | (47,723) | (829,264) | ||||
(Increase) decrease in provision for credit losses | (169) | — | — | (169) | — | ||||
Equity in earnings (losses) of unconsolidated ventures | — | 2 | (352) | 2 | (281) | ||||
Gain (loss) on derivative instruments, net | 96,624 | (44,895) | 181,742 | 51,729 | 420,602 | ||||
Other investment income (loss), net | 27 | (93) | (11) | (66) | 44 | ||||
Total other income (loss) | (3,197) | 6,970 | (143,497) | 3,773 | (408,899) | ||||
Expenses | |||||||||
Management fee – related party | 3,168 | 2,979 | 4,619 | 6,147 | 9,893 | ||||
General and administrative | 1,963 | 2,089 | 2,519 | 4,052 | 4,543 | ||||
Total expenses | 5,131 | 5,068 | 7,138 | 10,199 | 14,436 | ||||
Net income (loss) | 4,078 | 21,463 | (109,535) | 25,541 | (337,957) | ||||
Dividends to preferred stockholders | (5,840) | (5,862) | (8,100) | (11,702) | (16,494) | ||||
Gain on repurchase and retirement of preferred stock | 364 | — | 1,491 | 364 | 1,491 | ||||
Net income (loss) attributable to common stockholders | (1,398) | 15,601 | (116,144) | 14,203 | (352,960) | ||||
Earnings (loss) per share: | |||||||||
Net income (loss) attributable to common stockholders | |||||||||
Basic | (0.03) | 0.39 | (3.52) | 0.35 | (10.70) | ||||
Diluted | (0.03) | 0.39 | (3.52) | 0.35 | (10.70) | ||||
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) | |||||||||
Three Months Ended | Six Months Ended | ||||||||
$ in thousands | June 30, | March 31, | June 30, | June 30, | June 30, | ||||
Net income (loss) | 4,078 | 21,463 | (109,535) | 25,541 | (337,957) | ||||
Other comprehensive income (loss): | |||||||||
Unrealized gain (loss) on mortgage-backed securities, net | (131) | (476) | (1,825) | (607) | (4,246) | ||||
Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses | 169 | — | — | 169 | — | ||||
Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense | (3,201) | (4,494) | (4,802) | (7,695) | (9,998) | ||||
Currency translation adjustments on investment in unconsolidated venture | — | (10) | (93) | (10) | (293) | ||||
Reclassification of currency translation loss on investment in unconsolidated venture to other investment income (loss), net | — | 123 | — | 123 | — | ||||
Total other comprehensive income (loss) | (3,163) | (4,857) | (6,720) | (8,020) | (14,537) | ||||
Comprehensive income (loss) | 915 | 16,606 | (116,255) | 17,521 | (352,494) | ||||
Dividends to preferred stockholders | (5,840) | (5,862) | (8,100) | (11,702) | (16,494) | ||||
Gain on repurchase and retirement of preferred stock | 364 | — | 1,491 | 364 | 1,491 | ||||
Comprehensive income (loss) attributable to common stockholders | (4,561) | 10,744 | (122,864) | 6,183 | (367,497) | ||||
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |||
As of | |||
$ in thousands, except share amounts | June 30, 2023 | December 31, 2022 | |
ASSETS | |||
Mortgage-backed securities, at fair value (including pledged securities of $5,224,675 and $4,439,583, respectively; net of allowance for credit losses of $1 | |||
