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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 20, 2018
 
392263523_ivrwordmarkmainimage.jpg

(Exact name of registrant as specified in its charter)

 
 
 
 
 
 
Maryland
 
001-34385
 
 26-2749336
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
1555 Peachtree Street, NE, Atlanta, Georgia
 
30309
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (404) 892-0896
n/a
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





 

Item 2.02
Results of Operations and Financial Condition.

On February 20, 2018, Invesco Mortgage Capital Inc. (the “registrant”) issued a press release announcing its financial results for the quarter ended December 31, 2017 (the “Release”).

The Release is attached to this Report as Exhibit 99.1 and the information contained in the Release is incorporated into this Item 2.02 by this reference. The information contained in this Item 2.02 is being "furnished" and shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in such filing.





Item 9.01
Financial Statements and Exhibits.
 
 
(d)
Exhibits.
 
 
 
 
Exhibit No.
 
Description
99.1
 


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Invesco Mortgage Capital Inc.

By: /s/ R. Lee Phegley, Jr.
R. Lee Phegley, Jr.
Chief Financial Officer


Date: February 20, 2018



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

392263523_ivrwordmarkmainimage.jpg
Press Release
For immediate release


Tony Semak, Investor Relations
800-241-5477

Invesco Mortgage Capital Inc. Reports Fourth Quarter 2017 Financial Results
Diversified strategy continued to deliver strong results
Basic EPS of $1.23, Core EPS* of $0.47
Q4 common stock dividend increased to $0.42 per share
Economic return** of 2.3% for the quarter, 14.3% for 2017


Atlanta - February 20, 2018 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced financial results for the quarter ended December 31, 2017.

Highlights:
Q4 2017 net income attributable to common stockholders of $137.4 million or $1.23 basic earnings per common share (“EPS”) compared to $49.1 million or $0.44 basic EPS in Q3 2017
Q4 2017 core earnings* of $52.5 million or core EPS of $0.47 compared to $49.1 million or core EPS of $0.44 in Q3 2017
Q4 2017 book value per diluted common share*** of $18.35 compared to $18.34 at Q3 2017 and $17.48 at Q4 2016
Q4 2017 common stock dividend increased to $0.42 per share
“We are pleased to report our fourth consecutive quarter of growth in core earnings and another year of strong economic returns,” said John Anzalone, Chief Executive Officer.  “We also increased our common stock dividend for the second consecutive quarter reflecting the core earnings power of our portfolio.  Additionally, the credit profile of our investment portfolio continues to strengthen as a result of further improvement in residential and commercial mortgage fundamentals.” 



* 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.
**Economic return for the quarter ended December 31, 2017 is defined as the change in book value per diluted common share from September 30, 2017 to December 31, 2017 of $0.01; plus dividends declared of $0.42 per common share; divided by the September 30, 2017 book value per diluted common share of $18.34. Economic return for the twelve months ended December 31, 2017 is defined as the change in book value per diluted common share fromDecember 31, 2016to December 31, 2017 of $0.87; plus dividends declared of $1.63 per common share; divided by the December 31, 2016 book value per diluted common share of $17.48.
***Book value per diluted common share is calculated as total equity less the liquidation preference of our 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 plus Operating Partnership Units convertible into shares of common stock (1,425,000 shares).


 
1
 

Exhibit 99.1

Key performance indicators for the quarters ended December 31, 2017 and September 30, 2017 are summarized in the table below.
($ in millions, except share amounts)
Q4 ‘17
Q3 ‘17
Variance
Average Balances
(unaudited)
(unaudited)
 
Average earning assets (at amortized cost)

$18,313.2


$17,434.6


$878.6

Average borrowings

$15,909.6


$15,196.4


$713.2

Average equity

$2,206.9


$2,206.3


$0.6

 
 
 
 
U.S. GAAP Financial Measures
 
 
 
Total interest income

$153.0


$140.4


$12.6

Total interest expense

$59.9


$54.2


$5.7

Net interest income

$93.0


$86.2


$6.8

Total expenses

$12.0


$11.3


$0.7

Net income attributable to common stockholders

$137.4


$49.1


$88.3

 
 
 
 
Average earning asset yields
3.34
%
3.22
%
0.12
%
Cost of funds
1.51
%
1.43
%
0.08
%
Net interest rate margin
1.83
%
1.79
%
0.04
%
 
 
 
 
Book value per diluted common share*

$18.35


$18.34


$0.01

Earnings per common share (basic)

$1.23


$0.44


$0.79

Earnings per common share (diluted)

$1.18


$0.43


$0.75

Debt-to-equity ratio
6.0
x
6.0
x
0.0
x
 
 
 
 
Non-GAAP Financial Measures**
 
 
 
Core earnings

$52.5


$49.1


$3.4

Effective interest income

$158.8


$146.3


$12.5

Effective interest expense

$83.1


$78.1


$5.0

Effective net interest income

$75.7


$68.2


$7.5

 
 
 
 
Effective yield
3.46
%
3.36
%
0.10
%
Effective cost of funds
2.09
%
2.06
%
0.03
%
Effective interest rate margin
1.37
%
1.30
%
0.07
%
 
 
 
 
Core earnings per common share

$0.47


$0.44


$0.03

Repurchase agreement debt-to-equity ratio
6.1
x
6.3
x
-0.2x


*Book value per diluted common share is calculated as total equity less the liquidation preference of our 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 plus Operating Partnership Units convertible into shares of common stock (1,425,000 shares).

** 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 repurchase agreement 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.

 
2
 

Exhibit 99.1

Financial Summary
Net income attributable to common stockholders for the fourth quarter of 2017 was $137.4 million, compared to $49.1 million for the third quarter. The improvement in the fourth quarter was primarily due to a $64.3 million net gain on derivative instruments versus a $2.0 million net gain in the third quarter. Book value per diluted common share as of December 31, 2017 was $18.35 compared to $18.34 as of September 30, 2017.
During the fourth quarter of 2017, the Company generated $52.5 million in core earnings compared to $49.1 million in the third quarter. Higher core earnings reflect the full quarter accretive impact of the Company's August 2017 Preferred C stock offering. Fully invested proceeds of the offering drove a $7.5 million increase in effective net interest income that was partially offset by a $2.8 million increase in preferred dividends and $0.6 million increase in management fees associated with the offering.
The Company had average earning assets of $18.3 billion and interest income of $153.0 million in the fourth quarter compared to average earning assets of $17.4 billion and interest income of $140.4 million during the third quarter. During the fourth quarter, the Company primarily used proceeds from paydowns and sales of investments to purchase 30 year fixed-rate Agency RMBS and CMBS and to repay debt. Average earning asset yields rose from 3.22% in the third quarter to 3.34% in the fourth quarter reflecting higher yields on 30 year fixed-rate Agency RMBS and CMBS. As of December 31, 2017, the Company's holdings of 30 year fixed-rate Agency RMBS represented 42% of our total investment portfolio compared to 40% at September 30, 2017 and 20% at December 31, 2016. The Company has increased its allocation of equity to Agency RMBS to 45% as of December 31, 2017 from 41% as of September 30, 2017 and December 31, 2016, respectively, as returns on Agency RMBS continue to be attractive compared to credit assets.
The Company increased its average borrowings by $0.7 billion in the fourth quarter, resulting in average borrowings of $15.9 billion and total interest expense of $59.9 million in the fourth quarter compared to average borrowings of $15.2 billion and total interest expense of $54.2 million during the third quarter. The Company's cost of funds was 1.51% and 1.43% for the fourth quarter and third quarter, respectively. The Company's cost of funds rose during the fourth quarter primarily due to higher repurchase agreement borrowing rates leading up to the December 2017 increase in the Federal Funds target rate.
The Company held its debt-to-equity ratio constant at 6.0x in the fourth quarter of 2017. The Company retired an additional $14.4 million of its Exchangeable Senior Notes (the “Notes”) during the fourth quarter and has reduced the balance of Notes outstanding to $143.4 million as of December 31, 2017. The Company has sufficient liquidity through available cash and cash equivalents and additional borrowing capacity through repurchase agreements to retire the Notes when they mature on March 15, 2018.
Total expenses for the fourth quarter were approximately $12.0 million compared to $11.3 million for the third quarter. Total expenses were higher in the fourth quarter primarily due to a $0.6 million increase in management fees associated with the Company's August 2017 offering of Preferred C stock. The ratio of annualized total expenses to average equity* for the fourth quarter was 2.17%.
As previously announced, the Company declared the following dividends on December 14, 2017: a common stock dividend of $0.42 per share paid on January 26, 2018 and a Series A preferred stock dividend of $0.4844 per share paid on January 25, 2018. The Company declared the following dividends on its Series B and Series C Preferred Stock on February 15, 2018 to its stockholders of record as of March 5, 2018: a Series B Preferred Stock dividend of $0.4844 per share payable on March 27, 2018 and a Series C Preferred Stock dividend of $0.46875 per share payable on March 27, 2018.
*The ratio of annualized total expenses to average equity is calculated as the annualized sum of management fees plus general and administrative expenses divided by average equity. Average equity is calculated based on weighted month-end balance of total equity excluding equity attributable to preferred stockholders.

 
3
 

Exhibit 99.1


About Invesco Mortgage Capital Inc.
Invesco Mortgage Capital Inc. is a real estate investment trust that focuses on investing in, 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., 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 21, 2018, at 9:00 a.m. ET, by calling one of the following numbers:

North America Toll Free:    800-857-7465
International:        1-312-470-0052
Passcode:         Invesco

An audio replay will be available until 5:00 pm ET on March 7, 2018 by calling:

800-925-4790 (North America) or 1-203-369-3533 (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 residential and commercial real estate market), the market for our target assets, mortgage reform programs, our financial performance, including our core earnings, economic return, comprehensive income and changes in our book value per diluted common share, 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.

Investor Relations Contact: Tony Semak, 800-241-5477


 
4
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
 
Years Ended
$ in thousands, except share amounts
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
Interest Income
 
 
 
 
 
 
 
 
 
Mortgage-backed and credit risk transfer securities
147,509

 
134,138

 
108,871

 
521,547

 
456,444

Commercial loans
5,472

 
6,251

 
5,718

 
23,508

 
22,238

Total interest income
152,981

 
140,389

 
114,589

 
545,055

 
478,682

Interest Expense
 
 
 
 
 
 
 
 
 
Repurchase agreements
51,955

 
45,907

 
26,048

 
163,881

 
124,000

Secured loans
5,878

 
5,544

 
2,738

 
19,370

 
10,887

Exchangeable senior notes
2,104

 
2,724

 
5,620

 
13,340

 
22,467

Total interest expense
59,937

 
54,175

 
34,406

 
196,591

 
157,354

Net interest income
93,044

 
86,214

 
80,183

 
348,464

 
321,328

Other Income (loss)
 
 
 
 
 
 
 
 
 
Gain (loss) on investments, net
(17,153
)
 
(11,873
)
 
(23,402
)
 
(19,704
)
 
(17,542
)
Equity in earnings (losses) of unconsolidated ventures
(47
)
 
408

 
400

 
(1,327
)
 
2,392

Gain (loss) on derivative instruments, net
64,251

 
1,955

 
230,713

 
18,155

 
(62,815
)
Realized and unrealized credit derivative income (loss), net
13,220

 
(2,930
)
 
3,579

 
51,648

 
61,143

Net loss on extinguishment of debt, net
(233
)
 
(1,344
)
 

 
(6,814
)
 

Other investment income (loss), net
1,206

 
2,313

 
(1,385
)
 
7,381

 
(5,002
)
Total other income (loss)
61,244

 
(11,471
)
 
209,905

 
49,339

 
(21,824
)
Expenses
 
 
 
 
 
 
 
 
 
Management fee – related party
10,171

 
9,557

 
9,249

 
37,556

 
34,541

General and administrative
1,801

 
1,697

 
1,496

 
7,190

 
7,265

Total expenses
11,972

 
11,254

 
10,745

 
44,746

 
41,806

Net income
142,316

 
63,489

 
279,343

 
353,057

 
257,698

Net income attributable to non-controlling interest
1,794

 
800

 
3,522

 
4,450

 
3,287

Net income attributable to Invesco Mortgage Capital Inc.
140,522

 
62,689

 
275,821

 
348,607

 
254,411

Dividends to preferred stockholders
3,086

 
13,562

 
5,716

 
28,080

 
22,864

Net income attributable to common stockholders
137,436

 
49,127

 
270,105

 
320,527

 
231,547

Earnings per share:
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
 
 
 
 
 
 
 
 
 
Basic
1.23

 
0.44

 
2.42

 
2.87

 
2.07

Diluted
1.18

 
0.43

 
2.15

 
2.75

 
1.98

Dividends declared per common share
0.42

 
0.41

 
0.40

 
1.63

 
1.60

(1)
The table below shows the components of mortgage-backed and credit risk transfer securities income for the periods presented.
 
Three Months Ended
 
Years Ended
$ in thousands
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
Coupon interest
166,726

 
156,635

 
141,597

 
616,697

 
574,692

Net premium amortization
(19,217
)
 
(22,497
)
 
(32,726
)
 
(95,150
)
 
(118,248
)
Mortgage-backed and credit risk transfer securities interest income
147,509

 
134,138

 
108,871

 
521,547

 
456,444


 
5
 

Exhibit 99.1



INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
Three Months Ended
 
Years Ended
In thousands
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
Net income
142,316

 
63,489

 
279,343

 
353,057

 
257,698

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
(84,896
)
 
19,089

 
(308,223
)
 
(9,885
)
 
(37,632
)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net

 
7

 
17,715

 
1,508

 
6,134

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense
(6,438
)
 
(6,438
)
 
(6,177
)
 
(25,544
)
 
5,154

Currency translation adjustments on investment in unconsolidated venture
531

 
807

 
138

 
863

 
128

Total other comprehensive income (loss)
(90,803
)
 
13,465

 
(296,547
)
 
(33,058
)
 
(26,216
)
Comprehensive income (loss)
51,513

 
76,954

 
(17,204
)
 
319,999

 
231,482

Less: Comprehensive income (loss) attributable to non-controlling interest
(648
)
 
(970
)
 
216

 
(4,032
)
 
(2,939
)
Less: Dividends to preferred stockholders
(3,086
)
 
(13,562
)
 
(5,716
)
 
(28,080
)
 
(22,864
)
Comprehensive income (loss) attributable to common stockholders
47,779

 
62,422

 
(22,704
)
 
287,887

 
205,679





 
6
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
As of
 
December 31, 2017
 
December 31, 2016
In thousands except share amounts
 
ASSETS
 
 
 
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $17,474,616 and $14,422,198, respectively)
18,190,754

 
14,981,331

Commercial loans, held-for-investment
191,808

 
273,355

Cash and cash equivalents
88,381

 
161,788

Due from counterparties
620

 
86,450

Investment related receivable
73,217

 
90,831

Derivative assets, at fair value
6,896

 
3,186

Other assets
105,580

 
109,297

Total assets
18,657,256

 
15,706,238

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
14,080,801

 
11,160,669

Secured loans
1,650,000

 
1,650,000

Exchangeable senior notes
143,231

 
397,041

Derivative liabilities, at fair value
32,765

 
134,228

Dividends and distributions payable
50,193

 
50,924

Investment related payable
5,191

 
9,232

Accrued interest payable
17,845

 
21,066

Collateral held payable
7,327

 
1,700

Accounts payable and accrued expenses
2,200

 
1,534

Due to affiliate
10,825

 
9,660

Total liabilities
16,000,378

 
13,436,054

Commitments and contingencies (See Note 16) (1)

 

Equity:
 
 
 
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized:
 
 
 
7.75% Series A Cumulative Redeemable Preferred Stock: 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference)
135,356

 
135,356

7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 6,200,000 shares issued and outstanding ($155,000 aggregate liquidation preference)
149,860

 
149,860

7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 11,500,000 shares issued and outstanding ($287,500 aggregate liquidation preference)
278,108

 

Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 111,624,159 and 111,594,595 shares issued and outstanding, respectively
1,116

 
1,116

Additional paid in capital
2,384,356

 
2,379,863

Accumulated other comprehensive income
261,029

 
293,668

Retained earnings (distributions in excess of earnings)
(579,334
)
 
(718,303
)
Total stockholders’ equity
2,630,491

 
2,241,560

Non-controlling interest
26,387

 
28,624

Total equity
2,656,878

 
2,270,184

Total liabilities and equity
18,657,256

 
15,706,238


(1)
See Note 16 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, 2017.



 
7
 

Exhibit 99.1

Non-GAAP Financial Measures
The Company uses the following non-GAAP financial measures to analyze its operating results and believes these financial measures are useful to investors in assessing the Company's performance as further discussed below:
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
repurchase agreement debt-to-equity ratio. 
The most directly comparable U.S. GAAP measures are:
net income (loss) attributable to common stockholders (and by calculation, basic earnings (loss) per common share),
total interest income (and by calculation, earning asset yield),
total interest expense (and by calculation, cost of funds),
net interest income (and by calculation, net interest rate margin), and
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.

Core Earnings
The Company calculates core earnings 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; realized and unrealized (gain) loss on GSE CRT embedded derivatives, net; (gain) loss on foreign currency transactions, net; amortization of net deferred (gain) loss on de-designated interest rate swaps; net loss on extinguishment of debt; and cumulative adjustments attributable to non-controlling interest. The Company may add and has added additional reconciling items to its core earnings calculation as appropriate.

The Company believes the presentation of core earnings provides a consistent measure of operating performance by excluding the impact of gains and losses described above from operating results. The Company excludes the impact of gains and losses because 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, the majority 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 sheet. 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 statement of operations. In addition, certain gains and losses represent one-time events.

The Company believes that providing transparency into core earnings enables its investors to consistently measure, evaluate and compare its operating performance to that of its peers over multiple reporting periods. However, the Company cautions that core earnings 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 an indication of amounts available to fund its cash needs, including its ability to make cash distributions.


 
8
 

Exhibit 99.1

The table below provides a reconciliation of U.S. GAAP net income attributable to common stockholders to core earnings for the following periods:
 
Three Months Ended
 
Years Ended
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
$ in thousands, except per share data
 
 
 
 
Net income attributable to common stockholders
137,436

 
49,127

 
270,105

 
320,527

 
231,547

Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on investments, net
17,153

 
11,873

 
23,402

 
19,704

 
17,542

Realized (gain) loss on derivative instruments, net (1)
(73,646
)
 
(19,503
)
 
(4,279
)
 
(67,838
)
 
57,943

Unrealized (gain) loss on derivative instruments, net (1)
(7,368
)
 
95

 
(250,774
)
 
(27,393
)
 
(99,932
)
Realized and unrealized (gain) loss on GSE CRT embedded derivatives, net (2)
(7,401
)
 
8,803

 
2,376

 
(28,305
)
 
(36,800
)
(Gain) loss on foreign currency transactions,
net (3)
(387
)
 
(1,504
)
 
2,180

 
(4,134
)
 
8,187

Amortization of net deferred (gain) loss on de-designated interest rate swaps (4)
(6,438
)
 
(6,438
)
 
(6,177
)
 
(25,544
)
 
5,154

Net loss on extinguishment of debt
233

 
1,344

 

 
6,814

 

Subtotal
(77,854
)
 
(5,330
)
 
(233,272
)
 
(126,696
)
 
(47,906
)
Cumulative adjustments attributable to non-controlling interest
981

 
67

 
2,942

 
1,597

 
653

Series B preferred stock dividend cumulative adjustment (5)
(2,870
)
 

 

 
(2,870
)
 

Series C preferred stock dividend declared but not accumulated (6)
(5,211
)
 
5,211

 

 

 

Core earnings
52,482

 
49,075

 
39,775

 
192,558

 
184,294

Basic earnings per common share
1.23

 
0.44

 
2.42

 
2.87

 
2.07

Core earnings per share attributable to common stockholders (7)
0.47

 
0.44

 
0.36

 
1.73

 
1.65


(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, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
$ in thousands
 
 
 
 
Realized gain (loss) on derivative instruments, net
73,646

 
19,503

 
4,279

 
67,838

 
(57,943
)
Unrealized gain (loss) on derivative instruments, net
7,368

 
(95
)
 
250,774

 
27,393

 
99,932

Contractual net interest expense
(16,763
)
 
(17,453
)
 
(24,340
)
 
(77,076
)
 
(104,804
)
Gain (loss) on derivative instruments, net
64,251

 
1,955

 
230,713

 
18,155

 
(62,815
)


 
9
 

Exhibit 99.1

(2)
U.S. GAAP realized and unrealized credit derivative income (loss), net on the consolidated statements of operations includes the following components:
 
Three Months Ended
 
Years Ended
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
$ in thousands
 
 
 
 
Realized and unrealized gain (loss) on GSE CRT embedded derivatives, net
7,401

 
(8,803
)
 
(2,376
)
 
28,305

 
36,800

GSE CRT embedded derivative coupon interest
5,819

 
5,873

 
5,955

 
23,343

 
24,343

Realized and unrealized credit derivative income (loss), net
13,220

 
(2,930
)
 
3,579

 
51,648

 
61,143


(3)
U.S. GAAP other investment income (loss), net on the consolidated statements of operations includes the following components:
 
Three Months Ended
 
Years Ended
 
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
$ in thousands
 
 
 
 
FHLBI dividend income
819

 
809

 
795

 
3,247

 
3,185

Gain (loss) on foreign currency transactions, net
387

 
1,504

 
(2,180
)
 
4,134

 
(8,187
)
Other investment income (loss), net
1,206

 
2,313

 
(1,385
)
 
7,381

 
(5,002
)

(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, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
$ in thousands
 
 
 
 
Interest expense on repurchase agreements outstanding
58,393

 
52,345

 
32,225

 
189,425

 
118,846

Amortization of net deferred (gain) loss on de-designated interest rate swaps
(6,438
)
 
(6,438
)
 
(6,177
)
 
(25,544
)
 
5,154

Repurchase agreements interest expense
51,955

 
45,907

 
26,048

 
163,881

 
124,000


(5)
Cumulative dividends are charged to retained earnings when declared or earned under U.S. GAAP. The Company has historically declared quarterly dividends on Series B Preferred Stock prior to dividends accumulating.  As of September 14, 2017, the Company declared cumulative dividends on Series B Preferred Stock from the date of issuance through December 26, 2017.  In December 2017, the Company deferred declaring its next dividend on Series B Preferred Stock to February 2018. Due to the change in declaration date, the Company recorded $9.1 million in Series B Preferred Stock dividends for the year ended December 31, 2017 compared to $12.0 million for the year ended December 31, 2016. The Company reduced core earnings for the three months ended December 31, 2017 for the cumulative impact of deferring the declaration date to February 2018 because the Company considers all dividends accumulated during a quarter a current component of its capital costs regardless of the dividend declaration date.

(6)
On September 14, 2017, the Company declared a dividend on Series C Preferred Stock that covers the period from the date of issuance, August 16, 2017, to but not including the dividend payment date, December 27, 2017. The Company increased core earnings for the three months ended September 30, 2017 for the portion of the dividend from October 1, 2017 through December 26, 2017 because the Company did not consider the future unaccumulated portion of the dividend a current component of its capital costs. The Company decreased core earnings for this portion of the dividend for the three months ended December 31, 2017.

(7) Core earnings per share attributable to common stockholders is equal to core earnings divided by the basic weighted average number of common shares outstanding.


 
10
 

Exhibit 99.1

Effective Interest Income/ Effective Yield/ Effective Interest Expense/Effective Cost of Funds/Effective Net Interest Income/Effective Interest Rate Margin
The Company calculates effective interest income (and by calculation, effective yield) as U.S. GAAP total interest income adjusted for GSE CRT embedded derivative coupon interest that is recorded as realized and unrealized credit derivative income (loss), net. The Company includes its GSE CRT embedded derivative coupon interest in effective interest income because GSE CRT coupon interest is not accounted for consistently under U.S. GAAP. The Company accounts for GSE CRTs purchased prior to August 24, 2015 as hybrid financial instruments, but has elected the fair value option for GSE CRTs purchased on or after August 24, 2015. Under U.S. GAAP, coupon interest on GSE CRTs accounted for using the fair value option is recorded as interest income, whereas coupon interest on GSE CRTs accounted for as hybrid financial instruments is recorded as realized and unrealized credit derivative income (loss). The Company adds back GSE CRT embedded derivative coupon interest to its total interest income because the Company considers GSE CRT embedded derivative coupon interest a current component of its total interest income irrespective of whether the Company has elected the fair value option for the GSE CRT or accounted for the GSE CRT as a hybrid financial instrument.
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 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 floating rate borrowings. The Company adds back the net payments it makes 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 expense on its interest rate swaps that is recorded as gain (loss) on derivative instruments, amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense and GSE CRT embedded derivative coupon interest that is recorded as realized and unrealized credit derivative income (loss), net.
The Company believes the presentation of effective interest income, effective yield, 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, provide information that is useful to investors in understanding the Company's borrowing costs and operating performance.

 
11
 

Exhibit 99.1

The following tables reconcile total interest income to effective interest income and yield to effective yield for the following periods:
 
Three Months Ended December 31, 2017
 
Three Months Ended 
 September 30, 2017
 
Three Months Ended December 31, 2016
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
152,981

 
3.34
%
 
140,389

 
3.22
%
 
114,589

 
2.96
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,819

 
0.12
%
 
5,873

 
0.14
%
 
5,955

 
0.16
%
Effective interest income
158,800

 
3.46
%
 
146,262

 
3.36
%
 
120,544

 
3.12
%
 
Years Ended December 31,
 
2017
 
2016
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
545,055

 
3.20
%
 
478,682

 
3.07
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
23,343

 
0.14
%
 
24,343

 
0.15
%
Effective interest income
568,398

 
3.34
%
 
503,025

 
3.22
%

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, 2017
 
Three Months Ended 
 September 30, 2017
 
Three Months Ended December 31, 2016
$ 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
59,937

 
1.51
%
 
54,175

 
1.43
%
 
34,406

 
1.01
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
6,438

 
0.16
%
 
6,438

 
0.17
%
 
6,177

 
0.18
%
Add: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
16,763

 
0.42
%
 
17,453

 
0.46
%
 
24,340

 
0.72
%
Effective interest expense
83,138

 
2.09
%
 
78,066

 
2.06
%
 
64,923

 
1.91
%
 
Years Ended December 31,
 
2017
 
2016
$ in thousands
Reconciliation
 
Cost of Funds / Effective Cost of Funds
 
Reconciliation
 
Cost of Funds / Effective Cost of Funds
Total interest expense
196,591

 
1.33
%
 
157,354

 
1.15
 %
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
25,544

 
0.17
%
 
(5,154
)
 
(0.04
)%
Add: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
77,076

 
0.52
%
 
104,804

 
0.76
 %
Effective interest expense
299,211

 
2.02
%
 
257,004

 
1.87
 %


 
12
 

Exhibit 99.1

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, 2017
 
Three Months Ended 
 September 30, 2017
 
Three Months Ended December 31, 2016
$ 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
93,044

 
1.83
 %
 
86,214

 
1.79
 %
 
80,183

 
1.95
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(6,438
)
 
(0.16
)%
 
(6,438
)
 
(0.17
)%
 
(6,177
)
 
(0.18
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,819

 
0.12
 %
 
5,873

 
0.14
 %
 
5,955

 
0.16
 %
Less: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
(16,763
)
 
(0.42
)%
 
(17,453
)
 
(0.46
)%
 
(24,340
)
 
(0.72
)%
Effective net interest income
75,662

 
1.37
 %
 
68,196

 
1.30
 %
 
55,621

 
1.21
 %
 
Years Ended December 31,
 
2017
 
2016
$ in thousands
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
 
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income
348,464

 
1.87
 %
 
321,328

 
1.92
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(25,544
)
 
(0.17
)%
 
5,154

 
0.04
 %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
23,343

 
0.14
 %
 
24,343

 
0.15
 %
Less: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
(77,076
)
 
(0.52
)%
 
(104,804
)
 
(0.76
)%
Effective net interest income
269,187

 
1.32
 %
 
246,021

 
1.35
 %

 
13
 

Exhibit 99.1

Repurchase Agreement Debt-to-Equity Ratio
The following tables show the allocation of the Company's equity to its target assets, the Company's debt-to-equity ratio, and the Company's repurchase agreement debt-to-equity ratio as of December 31, 2017 and September 30, 2017. The Company's debt-to-equity ratio is calculated in accordance with U.S. GAAP and is the ratio of total debt (sum of repurchase agreements, secured loans and exchangeable senior notes) to total equity. The Company presents a repurchase agreement debt-to-equity ratio, a non-GAAP financial measure of leverage, because the mortgage REIT industry primarily uses repurchase agreements, which typically mature within one year, to finance investments. The Company believes presenting the Company's repurchase agreement 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 the Company's refinancing risks, and gives investors a comparable statistic to those other mortgage REITs who almost exclusively borrow using short-term repurchase agreements that are subject to refinancing risk.
December 31, 2017
$ in thousands
Agency RMBS
Commercial Credit (1)
Residential Credit (2)
Exchangeable Senior Notes and Other
Total
Investments
12,849,851

3,434,196

2,124,487


18,408,534

Cash and cash equivalents (3)
39,630

31,069

17,682


88,381

Derivative assets, at fair value (4)
6,896




6,896

Other assets
77,893

64,904

6,669

3,979

153,445

Total assets
12,974,270

3,530,169

2,148,838

3,979

18,657,256

 
 
 
 
 
 
Repurchase agreements
11,111,755

1,396,330

1,572,716


14,080,801

Secured loans (5)
533,463

1,116,537



1,650,000

Exchangeable senior notes



143,231

143,231

Derivative liabilities, at fair value (4)
31,548

1,217



32,765

Other liabilities
51,840

24,742

14,888

2,111

93,581

Total liabilities
11,728,606

2,538,826

1,587,604

145,342

16,000,378

 
 
 
 
 
 
Total equity (allocated)
1,245,664

991,343

561,234

(141,363
)
2,656,878

Adjustments to calculate repurchase agreement debt-to-equity ratio:
 
 
 
 
 
Net equity in unsecured assets and exchangeable senior notes (6)

(217,780
)

141,363

(76,417
)
Collateral pledged against secured loans
(623,181
)
(1,304,315
)


(1,927,496
)
Secured loans
533,463

1,116,537



1,650,000

Equity related to repurchase agreement debt
1,155,946

585,785

561,234


2,302,965

Debt-to-equity ratio (7)
9.3

2.5

2.8

NA

6.0

Repurchase agreement debt-to-equity ratio (8)
9.6

2.4

2.8

NA

6.1

(1)
Investments in CMBS, commercial loans and investments in unconsolidated joint ventures are included in commercial credit.
(2)
Investments in non-Agency RMBS and GSE CRT are included in residential credit.
(3)
Cash and cash equivalents is allocated based on a percentage of equity for Agency RMBS, residential credit and commercial credit.
(4)
Derivative assets and liabilities are allocated based on the hedging strategy for each class.
(5)
Secured loans are allocated based on amount of collateral pledged.
(6)
Net equity in unsecured assets and exchangeable senior notes includes commercial loans, investments in unconsolidated joint ventures, exchangeable senior notes and other.
(7)
Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements, secured loans and exchangeable senior notes) to total equity.
(8)
Repurchase agreement debt-to-equity ratio is calculated as the ratio of repurchase agreements to equity related to repurchase agreement debt.






 
14
 

Exhibit 99.1

September 30, 2017
$ in thousands
Agency
RMBS
Commercial Credit (1)
Residential Credit (2)
Exchangeable Senior Notes and Other
Total
Investments
12,869,842

3,412,470

2,280,913


18,563,225

Cash and cash equivalents (3)
30,453

27,508

15,569


73,530

Derivative assets, at fair value (4)
7,394




7,394

Other assets
82,161

66,397

6,135

3,982

158,675

Total assets
12,989,850

3,506,375

2,302,617

3,982

18,802,824

 
 
 
 
 
 
Repurchase agreements
11,115,979

1,283,944

1,688,915


14,088,838

Secured loans (5)
517,771

1,132,229



1,650,000

Exchangeable senior notes, net



157,380

157,380

Derivative liabilities, at fair value (4)
39,292

1,339



40,631

Other liabilities
162,669

29,995

17,566

351

210,581

Total liabilities
11,835,711

2,447,507

1,706,481

157,731

16,147,430

 
 
 
 
 
 
Total equity (allocated)
1,154,139

1,058,868

596,136

(153,749
)
2,655,394

Adjustments to calculate repurchase agreement debt-to-equity ratio:
 
 
 
 
 
Net equity in unsecured assets and exchangeable senior notes (6)

(303,673
)

153,749

(149,924
)
Collateral pledged against secured loans
(598,870
)
(1,309,570
)


(1,908,440
)
Secured loans
517,771

1,132,229



1,650,000

Equity related to repurchase agreement debt
1,073,040

577,854

596,136


2,247,030

Debt-to-equity ratio (7)
10.1

2.3

2.8

NA

6.0

Repurchase agreement debt-to-equity ratio (8)
10.4

2.2

2.8

NA

6.3

(1)
Investments in CMBS, commercial loans and investments in unconsolidated joint ventures are included in commercial credit.
(2)
Investments in non-Agency RMBS and GSE CRT are included in residential credit.
(3)
Cash and cash equivalents is allocated based on a percentage of equity for Agency RMBS, residential credit and commercial credit.
(4)
Derivative assets and liabilities are allocated based on the hedging strategy for each class.
(5)
Secured loans are allocated based on amount of collateral pledged.
(6)
Net equity in unsecured assets and exchangeable senior notes includes commercial loans, investments in unconsolidated joint ventures, exchangeable senior notes and other.
(7)
Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements, secured loans and exchangeable senior notes) to total equity.
(8)
Repurchase agreement debt-to-equity ratio is calculated as the ratio of repurchase agreements to equity related to repurchase agreement debt.



 
15
 

Exhibit 99.1

Average Asset Balances
The table below presents information related to the Company's average earning assets for the following periods.
 
Three Months Ended
 
Years Ended
$ in thousands
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
Average Balances (1):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
3,080,248

 
3,223,684

 
3,654,738

 
3,297,267

 
2,722,301

30 year fixed-rate, at amortized cost
7,657,132

 
6,486,613

 
3,234,641

 
5,874,757

 
3,646,480

ARM, at amortized cost
244,284

 
258,304

 
310,835

 
267,265

 
353,937

Hybrid ARM, at amortized cost
1,750,982

 
1,847,709

 
2,523,691

 
1,969,767

 
2,800,812

Agency - CMO, at amortized cost
283,962

 
287,364

 
351,746

 
302,060

 
375,888

CMBS, at amortized cost
3,105,896

 
2,920,587

 
2,498,012

 
2,818,244

 
2,582,003

Non-Agency RMBS, at amortized cost
1,158,180

 
1,339,639

 
1,940,551

 
1,441,527

 
2,167,679

GSE CRT, at amortized cost
783,910

 
790,886

 
676,232

 
784,203

 
650,189

U.S. Treasury securities, at amortized cost

 

 

 

 
45,375

Commercial loans, at amortized cost
248,570

 
279,840

 
272,190

 
270,314

 
265,708

Average earning assets
18,313,164

 
17,434,626

 
15,462,636

 
17,025,404

 
15,610,372

Average Earning Asset Yields (2):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate
1.98
%
 
1.95
%
 
1.99
%
 
1.98
%
 
1.98
%
30 year fixed-rate
2.90
%
 
2.73
%
 
2.57
%
 
2.79
%
 
2.72
%
ARM
2.36
%
 
2.35
%
 
2.16
%
 
2.32
%
 
2.28
%
Hybrid ARM
2.25
%
 
2.19
%
 
2.02
%
 
2.26
%
 
2.12
%
Agency - CMO
2.74
%
 
2.71
%
 
2.07
%
 
1.54
%
 
2.47
%
CMBS
4.77
%
 
4.52
%
 
4.17
%
 
4.50
%
 
4.30
%
Non-Agency RMBS
7.18
%
 
6.56
%
 
5.22
%
 
6.22
%
 
4.97
%
GSE CRT (3)
2.79
%
 
2.74
%
 
1.24
%
 
2.58
%
 
0.98
%
U.S. Treasury securities
%
 
%
 
%
 
%
 
1.15
%
Commercial loans
8.73
%
 
8.86
%
 
8.33
%
 
8.70
%
 
8.35
%
Average earning asset yields
3.34
%
 
3.22
%
 
2.96
%
 
3.20
%
 
3.07
%
(1)
Average amounts for each period are based on weighted month-end balances; all percentages are annualized. Average balances are presented on an amortized cost basis.
(2)
Average earning asset yields for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average balance of the amortized cost of the investments. All yields are annualized.
(3)
GSE CRT average earning asset yields exclude coupon interest associated with embedded derivatives on securities not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net under U.S. GAAP.

 
16
 

Exhibit 99.1

Average Borrowings and Equity Balances
The table below presents information related to the Company's average borrowings and average equity for the following periods.
 
Three Months Ended
 
Years Ended
$ in thousands
December 31, 2017
 
September 30, 2017
 
December 31, 2016
 
December 31, 2017
 
December 31, 2016
Average Borrowings (1):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
11,649,089

 
10,919,243

 
9,018,802

 
10,494,355

 
8,872,694

CMBS (2)
2,511,435

 
2,367,648

 
2,144,486

 
2,323,689

 
2,176,963

Non-Agency RMBS
947,117

 
1,062,528

 
1,566,717

 
1,142,769

 
1,750,730

GSE CRT
654,453

 
661,095

 
485,692

 
643,070

 
459,738

U.S. Treasury securities

 

 

 

 
54,882

Exchangeable senior notes
147,498

 
185,930

 
396,834

 
228,846

 
395,910

Total average borrowings
15,909,592

 
15,196,444

 
13,612,531

 
14,832,729

 
13,710,917

Maximum borrowings during the period (3)
15,959,127

 
15,896,218

 
14,023,429

 
15,959,127

 
14,381,178

Average Cost of Funds (4):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
1.40
 %
 
1.28
 %
 
0.80
 %
 
1.18
 %
 
0.69
 %
CMBS (2)
2.00
 %
 
1.91
 %
 
1.18
 %
 
1.73
 %
 
1.14
 %
Non-Agency RMBS
2.74
 %
 
2.67
 %
 
2.03
 %
 
2.49
 %
 
1.90
 %
GSE CRT
2.71
 %
 
2.69
 %
 
2.15
 %
 
2.55
 %
 
2.14
 %
U.S. Treasury securities
 %
 
 %
 
 %
 
 %
 
0.25
 %
Exchangeable senior notes
5.71
 %
 
5.86
 %
 
5.66
 %
 
5.83
 %
 
5.67
 %
Cost of funds
1.51
 %
 
1.43
 %
 
1.01
 %
 
1.33
 %
 
1.15
 %
Interest rate swaps average fixed pay rate (5)
2.08
 %
 
2.09
 %
 
2.12
 %
 
2.11
 %
 
2.11
 %
Interest rate swaps average floating receive rate (6)
(1.32
)%
 
(1.24
)%
 
(0.66
)%
 
(1.14
)%
 
(0.53
)%
Effective cost of funds (non-GAAP measure) (7)
2.09
 %
 
2.06
 %
 
1.91
 %
 
2.02
 %
 
1.87
 %
Average Equity (8):
2,206,899

 
2,206,307

 
2,088,628

 
2,182,046

 
2,046,710

Average debt-to-equity ratio (average during period)
7.2x

 
6.9
x
 
6.5x

 
6.8x

 
6.7x

Debt-to-equity ratio (as of period end)
6.0x

 
6.0
x
 
5.8x

 
6.0x

 
5.8x

(1)
Average amounts for each period are based on weighted month-end balances; all percentages are annualized. Average balances are presented on an amortized cost basis.
(2)
Agency RMBS and CMBS average borrowings and cost of funds include borrowings under repurchase agreements and secured loans.
(3)
Amount represents the maximum borrowings at month-end during each of the respective periods.
(4)
Average cost of funds is calculated by dividing annualized interest expense excluding amortization of net deferred gain (loss) on de-designated interest rate swaps by the Company's average borrowings.
(5)
Interest rate swaps average fixed pay rate is calculated by dividing annualized contractual swap interest expense by the Company's average notional balance of interest rate swaps.
(6)
Interest rate swaps average floating receive rate is calculated by dividing annualized contractual swap interest income by the Company's average notional balance of interest rate swaps.
(7)
For a reconciliation of cost of funds to effective cost of funds, see “Non-GAAP Financial Measures.”
(8)
Average equity is calculated based on the weighted month-end balance of total equity excluding equity attributable to preferred stockholders.

 
17
 
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