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HomeInvestmentsInvesco Mortgage Capital Inc. Reports Fourth Quarter 2023 Financial Results

Invesco Mortgage Capital Inc. Reports Fourth Quarter 2023 Financial Results

ATLANTA, Feb. 22, 2024 /PRNewswire/ — Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced financial results for the quarter ended December 31, 2023.

  • Net income per common share of $0.46 compared to net loss of $1.62 in Q3 2023
  • Earnings available for distribution per common share(1) of $0.95 compared to $1.51 in Q3 2023
  • Common stock dividend of $0.40 per common share, unchanged from Q3 2023
  • Book value per common share(2) of $10.00 compared to $9.93 as of September 30, 2023
  • Economic return(3) of 4.7% compared to (13.8)% in Q3 2023

Update from John Anzalone, Chief Executive Officer

“The sharp rise in interest rates that began in the second quarter persisted in early October as the 10-year U.S. Treasury yield rose over 40 basis points to reach 5.0% for the first time in over 16 years, negatively impacting Agency RMBS valuations. Market sentiment then reversed course, as incoming data supported a soft landing narrative and market expectations for interest rate cuts by the Federal Reserve were pulled forward into the first quarter of 2024, benefiting Agency RMBS into year end. During the quarter, we reduced risk within the portfolio as volatility initially increased, and subsequently returned leverage to our target range as volatility subsided. Our book value per common share ended the quarter at $10.00, representing an increase of 0.7% from September 30th, and when combined with our $0.40 common stock dividend, produced an economic return of 4.7% for the quarter.  

“Our debt-to-equity ratio ended the fourth quarter at 5.7x, down from 6.4x as of September 30th. As of the end of the quarter, substantially all our $5.1 billion investment portfolio was invested in Agency RMBS, and we maintained a sizeable balance of unrestricted cash and unencumbered investments totaling $422 million.

“Earnings available for distribution (“EAD”) for the period benefited from attractive interest income on our target assets, favorable funding and low-cost, pay-fixed swaps. For the quarter, EAD per common share was $0.95 compared to $1.51 for the third quarter, reflecting declines in interest income on investments and interest rate swaps in connection with our reduction in leverage and adjustments to our swap portfolio. As of February 16, 2024, our book value per common share is estimated to be between $9.50 and $9.88.(4)

“We are cautious on the near-term outlook for the Agency RMBS sector given recent strong performance and the uncertain timing of monetary policy adjustments. However, the potential reduction in interest rate volatility associated with the eventual normalization of monetary policy should be supportive for investors with longer time horizons. We believe Agency RMBS investors stand to benefit from attractive valuations, favorable funding and a steeper yield curve as the macro environment stabilizes.”

(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 as of December 31, 2023 and September 30, 2023 is calculated as total stockholders’ equity less the liquidation preference of the Company’s Series B Preferred Stock and Series C Preferred Stock ($109.7 million and $188.6 million as of December 31, 2023, respectively, and $111.6 million and $192.0 million as of September 30, 2023, respectively), divided by total common shares outstanding.

(3) Economic return for the quarter ended December 31, 2023 is defined as the change in book value per common share from September 30, 2023 to December 31, 2023 of $0.07; plus dividends declared of $0.40 per common share; divided by the September 30, 2023 book value per common share of $9.93. Economic return for the quarter ended September 30, 2023 is defined as the change in book value per common share from June 30, 2023 to September 30, 2023 of ($2.05); plus dividends declared of $0.40 per common share; divided by the June 30, 2023 book value per common share of $11.98.

(4) Book value per common share as of February 16, 2024 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 stockholders’ equity less the liquidation preference of the Company’s Series B Preferred Stock and Series C Preferred Stock ($108.1 million and $187.1 million as of February 16, 2024, respectively), divided by total common shares outstanding of 48.5 million.

Key performance indicators for the quarters ended December 31, 2023 and September 30, 2023 are summarized in the table below.

($ in millions, except share amounts)

Q4 ’23

Q3 ’23

Variance

Average Balances

(unaudited)

(unaudited)


Average earning assets (at amortized cost)

$4,401.5

$5,498.3

($1,096.8)

Average borrowings

$3,736.4

$4,902.4

($1,166.0)

Average stockholders’ equity (1)

$790.2

$832.0

($41.8)





U.S. GAAP Financial Measures




Total interest income

$62.1

$75.1

($13.0)

Total interest expense

$53.8

$65.7

($11.9)

Net interest income

$8.3

$9.4

($1.1)

Total expenses

$4.8

$4.8

$0.0

Net income (loss) attributable to common stockholders

$22.3

($74.0)

$96.3





Average earning asset yields

5.64 %

5.47 %

0.17 %

Average cost of funds

5.76 %

5.36 %

0.40 %

Average net interest rate margin

(0.12) %

0.11 %

(0.23) %





Period-end weighted average asset yields (2)

5.42 %

5.23 %

0.19 %

Period-end weighted average cost of funds

5.53 %

5.43 %

0.10 %

Period-end weighted average net interest rate margin

(0.11) %

(0.20) %

0.09 %





Book value per common share (3)

$10.00

$9.93

$0.07

Earnings (loss) per common share (basic)

$0.46

($1.62)

$2.08

Earnings (loss) per common share (diluted)

$0.46

($1.62)

$2.08

Debt-to-equity ratio

               5.7x  

               6.4x  

             (0.7x)





Non-GAAP Financial Measures (4)




Earnings available for distribution

$45.8

$69.2

($23.4)

Effective interest expense

$5.7

($4.6)

$10.3

Effective net interest income

$56.4

$79.7

($23.3)





Effective cost of funds

0.61 %

(0.37) %

0.98 %

Effective interest rate margin

5.03 %

5.84 %

(0.81) %





Earnings available for distribution per common share

$0.95

$1.51

($0.56)

Economic debt-to-equity ratio

               5.7x  

               6.4x  

             (0.7x)


(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 ($109.7 million and $188.6 million as of December 31, 2023, respectively, and $111.6 million and $192.0 million as of September 30, 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.

Portfolio Composition

The following table summarizes the Company’s MBS portfolio as of December 31, 2023 and September 30, 2023.




As of




December 31, 2023


September 30, 2023

$ in thousands


Fair Value


Percentage of
Portfolio


Period-end
Weighted
Average
Yield


Fair Value


Percentage of
Portfolio


Period-end
Weighted
Average
Yield

30 year fixed-rate Agency RMBS coupon:














4.0 %


876,337


17.4 %


4.65 %


1,218,869


22.4 %


4.64 %


4.5 %


1,017,191


20.2 %


4.95 %


1,313,632


24.1 %


4.97 %


5.0 %


1,028,036


20.4 %


5.34 %


1,424,615


26.2 %


5.32 %


5.5 %


1,016,707


20.2 %


5.59 %


1,374,853


25.3 %


5.59 %


6.0 %


1,014,203


20.1 %


6.03 %



— %


— %

Total 30 year fixed-rate Agency RMBS


4,952,474


98.3 %


5.33 %


5,331,969


98.0 %


5.15 %

Agency-CMO


74,758


1.3 %


9.74 %


78,007


1.4 %


9.67 %

Non-Agency CMBS


9,935


0.2 %


9.58 %


25,987


0.5 %


8.72 %

Non-Agency RMBS


8,139


0.2 %


9.10 %


7,965


0.1 %


8.56 %


Total MBS portfolio


5,045,306


100.0 %


5.42 %


5,443,928


100.0 %


5.23 %

The following table presents certain characteristics of the Company’s borrowings as of December 31, 2023 and September 30, 2023.



As of

$ in thousands


December 31, 2023


September 30, 2023


Amount
Outstanding


Weighted
Average
Interest Rate


Weighted
Average
Remaining
Maturity (days)


Amount
Outstanding


Weighted
Average
Interest Rate


Weighted
Average
Remaining
Maturity (days)

Agency RMBS repurchase agreements


4,458,695


5.53 %


20


4,987,006


5.43 %


24

The tables below present certain characteristics of the Company’s interest rate swaps whereby the Company pays interest at a fixed rate and receives floating interest based on the secured overnight financing rate (“SOFR”) as of December 31, 2023 and September 30, 2023.

$ in thousands


As of December 31, 2023

Maturities


Notional

Amount


Weighted
Average Fixed
Pay Rate


Weighted
Average Floating
Receive Rate


Weighted
Average Years to
Maturity

Less than 3 years


950,000


2.55 %


5.38 %


1.6

3 to 5 years


1,375,000


0.29 %


5.38 %


3.8

5 to 7 years


1,150,000


0.55 %


5.38 %


6.6

Greater than 10 years


590,000


1.75 %


5.38 %


21.4

Total


4,065,000


1.10 %


5.38 %


6.6



$ in thousands


As of September 30, 2023

Maturities


Notional

Amount


Weighted
Average Fixed
Pay Rate


Weighted
Average Floating
Receive Rate


Weighted
Average Years to
Maturity

Less than 3 years


950,000


0.32 %


5.31 %


2.1

3 to 5 years


1,975,000


0.35 %


5.31 %


4.2

5 to 7 years


1,175,000


0.46 %


5.31 %


6.6

7 to 10 years


750,000


1.10 %


5.31 %


7.5

Greater than 10 years


1,050,000


2.18 %


5.31 %


20.6

Total


5,900,000


0.79 %


5.31 %


7.7

The table below presents certain characteristics of the Company’s interest rate swaps whereby the Company pays floating interest based on SOFR and receives interest at a fixed rate as of September 30, 2023. We did not have any such swaps as of December 31, 2023.

$ in thousands


As of September 30, 2023

Maturities


Notional

Amount


Weighted
Average Floating
Pay Rate


Weighted
Average Fixed
Receive Rate


Weighted
Average Years to
Maturity

Less than 3 years


900,000


5.31 %


5.44 %


0.5

3 to 5 years


50,000


5.31 %


2.78 %


3.6

Total


950,000


5.31 %


5.30 %


0.7

Capital Activities

Dividends

As previously announced on December 19, 2023, the Company declared a common stock dividend on December 18, 2023 of $0.40 per share paid on January 26, 2024 to its stockholders of record as of December 29, 2023. The Company declared the following dividends on February 21, 2024: 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 March 27, 2024 to its stockholders of record on March 5, 2024.

Repurchases of Preferred Stock

During the three months ended December 31, 2023, the Company repurchased and retired 79,417 shares of Series B Preferred Stock and 135,772 shares of Series C Preferred Stock, respectively, for a total cost of $4.4 million.

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, February 23, 2024, 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 March 8, 2024 by calling:

866-361-4757 (North America) or 1-203-369-0183 (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

CONSOLIDATED STATEMENTS OF OPERATIONS



Three Months Ended


Years Ended

$ in thousands, except share amounts

December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022


(unaudited)


(unaudited)


(unaudited)





Interest income










Mortgage-backed and other securities

62,082


75,132


57,877


277,929


192,566

Commercial loan



179



1,947

Total interest income

62,082


75,132


58,056


277,929


194,513

Interest expense










Repurchase agreements

53,780


65,701


32,201


228,229


51,560

Total interest expense

53,780


65,701


32,201


228,229


51,560

Net interest income

8,302


9,431


25,855


49,700


142,953











Other income (loss)










Gain (loss) on investments, net

165,340


(224,897)


10,762


(107,280)


(1,079,339)

(Increase) decrease in provision for credit losses

(108)


(43)



(320)


Equity in earnings (losses) of unconsolidated ventures

(5)


2


(120)


(1)


(407)

Gain (loss) on derivative instruments, net

(141,580)


151,689


4,856


61,838


559,007

Other investment income (loss), net



142


(66)


186

Total other income (loss)

23,647


(73,249)


15,640


(45,829)


(520,553)

Expenses










Management fee – related party

3,053


3,090


3,177


12,290


16,906

General and administrative

1,697


1,691


1,857


7,440


8,418

Total expenses

4,750


4,781


5,034


19,730


25,324

Net income (loss)

27,199


(68,599)


36,461


(15,859)


(402,924)

Dividends to preferred stockholders

(5,679)


(5,772)


(5,862)


(23,153)


(28,218)

Gain on repurchase and retirement of preferred stock

760


347



1,471


14,179

Net income (loss) attributable to common stockholders

22,280


(74,024)


30,599


(37,541)


(416,963)

Earnings (loss) per share:










Net income (loss) attributable to common stockholders










Basic

0.46


(1.62)


0.84


(0.85)


(12.21)

Diluted

0.46


(1.62)


0.84


(0.85)


(12.21)

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



Three Months Ended


Years Ended

$ in thousands

December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022


(unaudited)


(unaudited)


(unaudited)





Net income (loss)

27,199


(68,599)


36,461


(15,859)


(402,924)

Other comprehensive income (loss):










Unrealized gain (loss) on mortgage-backed securities, net

607


(91)


(791)


(91)


(6,280)

Reclassification of unrealized loss on available-for-sale

securities to (increase) decrease in provision for credit losses

108


43



320


Reclassification of amortization of net deferred (gain) loss on

de-designated interest rate swaps to repurchase agreements

interest expense

(900)


(1,810)


(4,855)


(10,405)


(19,708)

Currency translation adjustments on investment in unconsolidated

venture



(103)


(10)


(537)

Reclassification of currency translation loss on investment in

unconsolidated venture to other investment income (loss), net




123


Total other comprehensive income (loss)

(185)


(1,858)


(5,749)


(10,063)


(26,525)

Comprehensive income (loss)

27,014


(70,457)


30,712


(25,922)


(429,449)

Dividends to preferred stockholders

(5,679)


(5,772)


(5,862)


(23,153)


(28,218)

Gain on repurchase and retirement of preferred stock

760


347



1,471


14,179

Comprehensive income (loss) attributable to common stockholders

22,095


(75,882)


24,850


(47,604)


(443,488)

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



As of


December 31, 2023


December 31, 2022

$ in thousands, except share amounts


ASSETS




Mortgage-backed securities, at fair value (including pledged securities of $4,712,185 and $4,439,583,

respectively; net of allowance for credit losses of $320 and $0, respectively)

5,045,306


4,791,893

U.S. Treasury securities

11,214


Cash and cash equivalents

76,967


175,535

Restricted cash

121,670


103,246

Due from counterparties


1,584

Investment related receivable

26,604


22,744

Derivative assets, at fair value

939


662

Other assets

1,509


1,731

Total assets

5,284,209


5,097,395

LIABILITIES AND STOCKHOLDERS’ EQUITY




Liabilities:




Repurchase agreements

4,458,695


4,234,823

Derivative liabilities, at fair value


2,079

Dividends payable

19,384


25,162

Accrued interest payable

15,787


20,546

Collateral held payable

2,475


4,892

Accounts payable and accrued expenses

1,296


1,365

Due to affiliate

3,907


4,453

Total liabilities

4,501,544


4,293,320

Commitments and contingencies (1)




Stockholders’ equity:




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




7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 4,385,997 and

  4,537,634 shares issued and outstanding, respectively ($109,650 and $113,441 aggregate

  liquidation preference, respectively)

106,014


109,679

7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 7,545,439 and

  7,816,470 shares issued and outstanding, respectively ($188,636 and $195,412 aggregate

  liquidation preference, respectively)

182,474


189,028

Common Stock, par value $0.01 per share; 67,000,000 shares authorized; 48,460,626 and

  38,710,916 shares issued and outstanding, respectively

484


387

Additional paid in capital

4,011,138


3,901,562

Accumulated other comprehensive income

698


10,761

Retained earnings (distributions in excess of earnings)

(3,518,143)


(3,407,342)

Total stockholders’ equity

782,665


804,075

Total liabilities and stockholders’ equity

5,284,209


5,097,395



(1)

See Note 14 of the Company’s consolidated financial statements filed in Part IV, Item 15 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Non-GAAP Financial Measures

The table below shows the non-GAAP financial measures the Company uses to analyze its operating results and the most directly comparable U.S. GAAP measures. The Company believes these non-GAAP measures are useful to investors in assessing its performance as discussed further below.

Non-GAAP Financial Measure


Most Directly Comparable U.S. GAAP Measure

Earnings available for distribution (and by calculation,

earnings available for distribution per common share)


Net income (loss) attributable to common stockholders (and

by calculation, basic earnings (loss) per common share)

Effective interest expense (and by calculation, effective cost

of funds)


Total interest expense (and by calculation, cost of funds)

Effective net interest income (and by calculation, effective

interest rate margin)


Net interest income (and by calculation, net interest rate margin)

Economic debt-to-equity ratio


Debt-to-equity ratio

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.

Earnings Available for Distribution

The Company’s business objective is to provide attractive risk-adjusted returns to its stockholders, primarily through dividends and secondarily through capital appreciation. The Company uses earnings available for distribution as a measure of its investment portfolio’s ability to generate income for distribution to common stockholders and to evaluate its progress toward meeting this objective. The Company calculates earnings available for distribution 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; TBA dollar roll income; gain on repurchase and retirement of preferred stock; foreign currency (gains) losses, net and amortization of net deferred (gain) loss on de-designated interest rate swaps.

By excluding the gains and losses discussed above, the Company believes the presentation of earnings available for distribution provides a consistent measure of operating performance that investors can use to evaluate its results over multiple reporting periods and, to a certain extent, compare to its peer companies. However, because not all of the Company’s peer companies use identical operating performance measures, the Company’s presentation of earnings available for distribution may not be comparable to other similarly titled measures used by its peer companies. The Company excludes the impact of gains and losses when calculating earnings available for distribution because (i) when analyzed in conjunction with its U.S. GAAP results, earnings available for distribution provides additional detail of its investment portfolio’s earnings capacity and (ii) gains and losses are not accounted for consistently under U.S. GAAP. Under U.S. GAAP, certain gains and losses are reflected in net income whereas other gains and losses are reflected in other comprehensive income. For example, a portion of the Company’s mortgage-backed securities are classified as available-for-sale securities, and changes in the valuation of these securities are recorded in other comprehensive income on its consolidated balance sheets. The Company elected the fair value option for its mortgage-backed securities purchased on or after September 1, 2016, and changes in the valuation of these securities are recorded in other income (loss) in the consolidated statements of operations. In addition, certain gains and losses represent one-time events. The Company may add and has added additional reconciling items to its earnings available for distribution calculation as appropriate.

To maintain qualification as a REIT, U.S. federal income tax law generally requires that the Company distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains. The Company has historically distributed at least 100% of its REIT taxable income. Because the Company views earnings available for distribution as a consistent measure of its investment portfolio’s ability to generate income for distribution to common stockholders, earnings available for distribution is one metric, but not the exclusive metric, that the Company’s board of directors uses to determine the amount, if any, and the payment date of dividends on common stock. However, earnings available for distribution should not be considered as an indication of the Company’s taxable income, a guaranty of its ability to pay dividends or as a proxy for the amount of dividends it may pay, as earnings available for distribution excludes certain items that impact its cash needs.

Earnings available for distribution is an incomplete measure of the Company’s financial performance and there are other factors that impact the achievement of the Company’s business objective. The Company cautions that earnings available for distribution should not be considered as an alternative to net income (determined in accordance with U.S. GAAP), or as an indication of the Company’s cash flow from operating activities (determined in accordance with U.S. GAAP), a measure of the Company’s liquidity, or as an indication of amounts available to fund its cash needs.

The table below provides a reconciliation of U.S. GAAP net income (loss) attributable to common stockholders to earnings available for distribution for the following periods:


Three Months Ended


Years Ended


December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022

$ in thousands, except per share data





Net income (loss) attributable to common stockholders

22,280


(74,024)


30,599


(37,541)


(416,963)

Adjustments:










(Gain) loss on investments, net

(165,340)


224,897


(10,762)


107,280


1,079,339

Realized (gain) loss on derivative instruments, net(1)

199,137


(84,565)


28,072


179,526


(459,466)

Unrealized (gain) loss on derivative instruments, net(1)

(8,576)


5,002


8,949


(2,356)


(12,669)

TBA dollar roll income(2)



1,428


697


28,843

(Gain) on repurchase and retirement of preferred stock

(760)


(347)



(1,471)


(14,179)

Foreign currency (gains) losses, net(3)



(142)


66


(186)

Amortization of net deferred (gain) loss on de-designated interest rate swaps(4)

(900)


(1,810)


(4,855)


(10,405)


(19,708)

Subtotal

23,561


143,177


22,690


273,337


601,974

Earnings available for distribution

45,841


69,153


53,289


235,796


185,011

Basic income (loss) per common share

0.46


(1.62)


0.84


(0.85)


(12.21)

Earnings available for distribution per common share(5)

0.95


1.51


1.46


5.35


5.42



(1)

U.S. GAAP gain (loss) on derivative instruments, net on the consolidated statements of operations includes the following components:




Three Months Ended


Years Ended


December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022

$ in thousands





Realized gain (loss) on derivative instruments, net

(199,137)


84,565


(28,072)


(179,526)


459,466

Unrealized gain (loss) on derivative instruments, net

8,576


(5,002)


(8,949)


2,356


12,669

Contractual net interest income (expense) on interest rate swaps

48,981


72,126


41,877


239,008


86,872

Gain (loss) on derivative instruments, net

(141,580)


151,689


4,856


61,838


559,007



(2)

A TBA dollar roll is a series of derivative transactions where TBAs with the same specified issuer, term and coupon but different settlement dates are simultaneously bought and sold. The TBA settling in the later month typically prices at a discount to the TBA settling in the earlier month. TBA dollar roll income represents the price differential between the TBA price for current month settlement versus the TBA price for forward month settlement. The Company includes TBA dollar roll income in earnings available for distribution because it is the economic equivalent of interest income on the underlying AgencyRMBS, less an implied financing cost, over the forward settlement period. TBA dollar roll income is a component of gain (loss) on derivative instruments, net on the Company’s consolidated statements of operations



(3)

Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the consolidated statements of operations



(4)

U.S. GAAP repurchase agreements interest expense on the consolidated statements of operations includes the following components:




Three Months Ended


Years Ended


December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022

$ in thousands





Interest expense on repurchase agreement borrowings

54,680


67,511


37,056


238,634


71,268

Amortization of net deferred (gain) loss on de-designated interest rate swaps

(900)


(1,810)


(4,855)


(10,405)


(19,708)

Repurchase agreements interest expense

53,780


65,701


32,201


228,229


51,560



(5)

Earnings available for distribution per common share is equal to earnings available for distribution divided by the basic weighted average number of common shares outstanding.




The table below presents the components of earnings available for distribution:




Three Months Ended


Years Ended

$ in thousands

December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022

Effective net interest income (1)

56,383


79,747


62,877


278,303


210,117

TBA dollar roll income



1,428


697


28,843

Equity in earnings (losses) of unconsolidated ventures

(5)


2


(120)


(1)


(407)

(Increase) decrease in provision for credit losses

(108)


(43)



(320)


Total expenses

(4,750)


(4,781)


(5,034)


(19,730)


(25,324)

Subtotal

51,520


74,925


59,151


258,949


213,229

Dividends to preferred stockholders

(5,679)


(5,772)


(5,862)


(23,153)


(28,218)

Earnings available for distribution

45,841


69,153


53,289


235,796


185,011



(1)

See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.

Effective Interest Expense/Effective Cost of Funds/Effective Net Interest Income/Effective Interest Rate Margin

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 borrowings. The Company adds back the net payments or receipts 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, net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense.

The Company believes the presentation of 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, provides information that is useful to investors in understanding the Company’s borrowing costs and operating performance.

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


December 31,
2023


September 30,
2023


December 31,
2022

$ 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

53,780


5.76 %


65,701


5.36 %


32,201


3.36 %

Add: Amortization of net deferred gain (loss) on de-designated

         interest rate swaps 

900


0.09 %


1,810


0.15 %


4,855


0.51 %

Less: Contractual net interest expense (income) on interest rate

         swaps recorded as gain (loss) on derivative instruments, net

(48,981)


(5.24) %


(72,126)


(5.88) %


(41,877)


(4.38) %

Effective interest expense

5,699


0.61 %


(4,615)


(0.37) %


(4,821)


(0.51) %


Years Ended December 31,


2023


2022

$ in thousands

Reconciliation


Cost of Funds
/ Effective
Cost of Funds


Reconciliation


Cost of Funds
/ Effective
Cost of Funds

Total interest expense

228,229


5.03 %


51,560


1.15 %

Add: Amortization of net deferred gain (loss) on de-designated

         interest rate swaps 

10,405


0.23 %


19,708


0.44 %

Less: Contractual net interest expense (income) on interest rate

         swaps recorded as gain (loss) on derivative instruments, net

(239,008)


(5.26) %


(86,872)


(1.93) %

Effective interest expense

(374)


— %


(15,604)


(0.34) %

The following tables reconcile 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


December 31,
2023


September 30,
2023


December 31,
2022

$ 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

8,302


(0.12) %


9,431


0.11 %


25,855


1.98 %

Less: Amortization of net deferred (gain) loss on de-designated

         interest rate swaps

(900)


(0.09) %


(1,810)


(0.15) %


(4,855)


(0.51) %

Add: Contractual net interest income (expense) on interest rate

         swaps recorded as gain (loss) on derivative instruments, net

48,981


5.24 %


72,126


5.88 %


41,877


4.38 %

Effective net interest income

56,383


5.03 %


79,747


5.84 %


62,877


5.85 %


Years Ended December 31,


2023


2022

$ in thousands

Reconciliation


Net Interest
Rate Margin /
Effective
Interest Rate
Margin


Reconciliation


Net Interest
Rate Margin /
Effective
Interest Rate
Margin

Net interest income

49,700


0.41 %


142,953


2.64 %

Less: Amortization of net deferred (gain) loss on de-designated

         interest rate swaps

(10,405)


(0.23) %


(19,708)


(0.44) %

Add: Contractual net interest income (expense) on interest rate

         swaps recorded as gain (loss) on derivative instruments, net

239,008


5.26 %


86,872


1.93 %

Effective net interest income

278,303


5.44 %


210,117


4.13 %

Economic Debt-to-Equity Ratio

The following tables show the allocation of the Company’s stockholders’ equity to its target assets, the Company’s debt-to-equity ratio, and the Company’s economic debt-to-equity ratio as of December 31, 2023 and September 30, 2023. The Company’s debt-to-equity ratio is calculated in accordance with U.S. GAAP and is the ratio of total debt to total stockholders’ equity.

The Company presents an economic debt-to-equity ratio, a non-GAAP financial measure of leverage that considers the impact of the off-balance sheet financing of its investments in TBAs that are accounted for as derivative instruments under U.S. GAAP. The Company includes its TBAs at implied cost basis in its measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities. Similarly, a contract for the forward sale of Agency RMBS has substantially the same effect as selling the underlying Agency RMBS and reducing the Company’s on-balance sheet funding commitments. The Company believes that presenting its economic debt-to-equity ratio, when considered together with its U.S. GAAP financial measure of debt-to-equity ratio, provides information that is useful to investors in understanding how management evaluates at-risk leverage and gives investors a comparable statistic to those of other mortgage REITs who also invest in TBAs and present a similar non-GAAP measure of leverage.

As of December 31, 2023

$ in thousands

Agency RMBS

Credit Portfolio (1)

Total

Mortgage-backed securities

5,027,232

18,074

5,045,306

U.S. Treasury securities

11,214

11,214

Cash and cash equivalents (2)

76,967

76,967

Restricted cash (3)

121,670

121,670

Derivative assets, at fair value (3)

939

939

Other assets

27,480

633

28,113

Total assets

5,265,502

18,707

5,284,209





Repurchase agreements

4,458,695

4,458,695

Other liabilities

42,117

732

42,849

Total liabilities

4,500,812

732

4,501,544





Total stockholders’ equity (allocated)

764,690

17,975

782,665

Debt-to-equity ratio (4)

5.8

5.7

Economic debt-to-equity ratio (5)

5.8

5.7



(1)

Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.

(2)

Cash and cash equivalents is allocated based on the Company’s financing strategy for each asset class.

(3)

Restricted cash and derivative assets are allocated based on the hedging strategy for each asset class.

(4)

Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders’ equity.

(5)

Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders’ equity. The Company did not have any TBAs outstanding as of December 31, 2023.

As of September 30, 2023

$ in thousands

Agency RMBS

Credit Portfolio (1)

Total

Mortgage-backed securities

5,409,976

33,952

5,443,928

Cash and cash equivalents (2)

173,921

173,921

Restricted cash (3)

185,824

185,824

Other assets

25,500

2,170

27,670

Total assets

5,795,221

36,122

5,831,343





Repurchase agreements

4,987,006

4,987,006

Derivative liabilities, at fair value (3)

7,637

7,637

Other liabilities

49,848

1,827

51,675

Total liabilities

5,044,491

1,827

5,046,318





Total stockholders’ equity (allocated)

750,730

34,295

785,025

Debt-to-equity ratio (4)

6.6

6.4

Economic debt-to-equity ratio (5)

6.6

6.4



(1)

Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.

(2)

Cash and cash equivalents is allocated based on the Company’s financing strategy for each asset class.

(3)

Restricted cash and derivative liabilities are allocated based on the hedging strategy for each asset class.

(4)

Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders’ equity.

(5)

Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders’ equity. The Company did not have any TBAs outstanding as of September 30, 2023.

Average Balances

The table below presents information related to the Company’s average earning assets, average earning asset yields, average borrowings and average cost of funds for the following periods:


Three Months Ended


Years Ended

$ in thousands

December 31,
2023


September 30,
2023


December 31,
2022


December 31,
2023


December 31,
2022

Average earning assets (1)

4,401,475


5,498,298


4,347,428


5,106,473


5,137,339

Average earning asset yields (2)

5.64 %


5.47 %


5.34 %


5.44 %


3.79 %











Average borrowings (3)

3,736,432


4,902,400


3,828,223


4,540,252


4,495,581

Average cost of funds (4)

5.76 %


5.36 %


3.36 %


5.03 %


1.15 %



(1)

Average balances for each period are based on weighted month-end balances.

(2)

Average earning asset yields for each period are calculated by dividing interest income, including amortization of premiums and discounts, by average 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 average borrowings.

Greg Seals,
Investor Relations
404-439-3323

SOURCE Invesco Mortgage Capital Inc.

Originally published at https://www.prnewswire.com/news-releases/invesco-mortgage-capital-inc-reports-fourth-quarter-2023-financial-results-302069262.html
Images courtesy of https://pixabay.com

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