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Section 1: 8-K (8-K)

Document


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): November 7, 2018

  395679189_ivrwordmarkmainimage04.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 November 7, 2018, Invesco Mortgage Capital Inc. (the “registrant”) issued a press release announcing its financial results for the quarter ended September 30, 2018 (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: November 7, 2018
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

395679189_ivrwordmarkmainimage04.jpg
Press Release
For immediate release


Brandon Burke, Investor Relations
800-241-5477

Invesco Mortgage Capital Inc. Reports Third Quarter 2018 Financial Results
Active management drives increase in portfolio yield
The Company continues to benefit from a diversified strategy
Common stock dividend maintained at $0.42 per share
Economic return* of 1.1%

Atlanta - November 7, 2018 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced financial results for the quarter ended September 30, 2018.

Financial Summary:
Q3 2018 comprehensive income attributable to common stockholders of $20.6 million compared to $36.1 million in Q2 2018
Q3 2018 net loss attributable to common stockholders of $64.5 million or $0.58 basic loss per common share primarily due to realized loss on sale of securities compared to net income attributable to common stockholders of $80.0 million or $0.72 basic earnings per share ("EPS") in Q2 2018;
Q3 2018 core earnings** of $45.6 million or core EPS of $0.41 compared to $46.1 million or core EPS of $0.41 in Q2 2018
Q3 2018 book value per diluted common share*** of $16.83 compared to $17.06 at Q2 2018
Economic return* of 1.1% for the quarter, (1.4%) year to date
Q3 2018 debt-to-equity ratio of 6.4x compared to 6.1x at Q2 2018
Q3 2018 common stock dividend maintained at $0.42 per share

“We are pleased to announce core earnings of $0.41 per common share and an economic return of 1.1% for the third quarter. During the quarter, we repositioned our Agency portfolio by rotating out of seasoned Agency RMBS and into newly issued 30 year Agency RMBS and Agency CMBS to take advantage of accretive opportunities in those sectors. A net loss on the sale of these securities did not impact book value as we report mortgage-backed securities at fair market value on our balance sheet. The portfolio repositioning drove an increase in our weighted average portfolio yield to 3.78% as of September 30, 2018, up 21 basis points from 3.57% as of June 30, 2018. We anticipate that our higher portfolio yield and active hedging strategy will help mitigate the impact of rising interest rates,” said John Anzalone, Chief Executive Officer. “In addition, our seasoned credit portfolio should continue to benefit from underlying price appreciation and strong borrower performance."

* Economic return for the quarter ended September 30, 2018 is defined as the change in book value per diluted common share from June 30, 2018 to September 30, 2018 of ($0.23); plus dividends declared of $0.42 per common share; divided by the June 30, 2018 book value per diluted common share of $17.06. Economic return for the nine months ended September 30, 2018 is defined as the change in book value per diluted common share from December 31, 2017 to September 30, 2018 of ($1.52); plus dividends declared of $1.26 per common share; divided by the December 31, 2017 book value per diluted common share of $18.35.
** Core earnings (and by calculation, core earnings per common share) are non-Generally Accepted Accounting Principles (“GAAP”) financial measures. Refer to the section entitled “Non-GAAP Financial Measures” for important disclosures and a reconciliation to the most comparable U.S. GAAP measures.
*** Book value per diluted common share is calculated as total equity less the liquidation preference of 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 September 30, 2018 and June 30, 2018 are summarized in the table below.
($ in millions, except share amounts)
Q3 ‘18
Q2 ‘18
Variance
Average Balances
(unaudited)
(unaudited)
 
Average earning assets (at amortized costs)

$18,359.7


$17,731.5


$628.2

Average borrowings

$15,972.8


$15,276.0


$696.8

Average equity

$2,085.3


$2,093.4


-$8.1

 
 
 
 
U.S. GAAP Financial Measures
 
 
 
Total interest income

$162.1


$151.6


$10.5

Total interest expense

$91.3


$77.9


$13.4

Net interest income

$70.8


$73.7


-$2.9

Total expenses

$11.8


$11.6


$0.2

Net income (loss) attributable to common stockholders

($64.5
)

$80.0


-$144.5

 
 
 
 
Average earning asset yields
3.53
%
3.42
%
0.11
%
Average cost of funds
2.29
%
2.04
%
0.25
%
Average net interest rate margin
1.24
%
1.38
%
-0.14
%
 
 
 
 
Period-end weighted average asset yields*
3.78
%
3.57
%
0.21
%
Period-end weighted average cost of funds
2.50
%
2.36
%
0.14
%
Period-end weighted average net interest rate margin
1.28
%
1.21
%
0.07
%
 
 
 
 
Book value per diluted common share**

$16.83


$17.06


-$0.23

Earnings (loss) per common share (basic)

($0.58
)

$0.72


-$1.30

Earnings (loss) per common share (diluted)

($0.58
)

$0.72


-$1.30

Debt-to-equity ratio
6.4
x
6.1
x
0.3
x
Comprehensive income attributable to common stockholders per common share (basic)

$0.18


$0.32


-$0.14

 
 
 
 
Non-GAAP Financial Measures***
 
 
 
Core earnings

$45.6


$46.1


-$0.5

Effective interest income

$167.7


$157.2


$10.5

Effective interest expense

$100.4


$89.3


$11.1

Effective net interest income

$67.3


$68.0


-$0.7

 
 
 
 
Effective yield
3.65
%
3.55
%
0.10
%
Effective cost of funds
2.52
%
2.34
%
0.18
%
Effective interest rate margin
1.13
%
1.21
%
-0.08
%
 
 
 
 
Core earnings per common share

$0.41


$0.41

$0.00
Repurchase agreement debt-to-equity ratio
6.6
x
6.5
x
0.1
x
*Period-end weighted average yields are based on amortized cost as of period end and incorporate future prepayment and loss assumptions.
** Book value per diluted common share is calculated as total equity less the liquidation preference of 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 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 loss attributable to common stockholders for the third quarter of 2018 was $64.5 million compared to net income attributable to common stockholders of $80.0 million for the second quarter of 2018. Net loss attributable to common stockholders was primarily driven by a $140.7 million realized loss on the sale of investments. The Company sold approximately $2.9 billion of Agency RMBS and reinvested approximately $4.2 billion of proceeds from the sales and paydowns of securities and commercial loans in newly issued 30 year Agency RMBS and Agency CMBS securities. Net income attributable to common stockholders was also impacted by a $2.9 million decrease in net interest income. While the Company's average earning asset yield rose 10 basis points during the quarter, average cost of funds rose 25 basis points reflecting higher borrowing costs driven by increases in the federal funds rate. Book value per diluted common share for the third quarter of 2018 decreased by 1.3% to $16.83 reflecting rising interest rates and wider Agency interest rate spreads.
During the third quarter of 2018, the Company generated $45.6 million in core earnings, a decrease of $0.5 million or 1.1% from the second quarter of 2018. Core earnings decreased in the third quarter primarily due to a $0.7 million decrease in effective net interest income driven by higher borrowing rates in the third quarter. Total effective cost of funds rose to 2.52%, up 18 basis points from 2.34% in the second quarter.
Total interest income for the third quarter of 2018 was $162.1 million compared to $151.6 million for the second quarter of 2018. Higher total interest income reflects a $628.2 million (3.9%) increase in average earning assets and an increase in average earning asset yields to 3.53% from 3.42% in the second quarter. Average earning assets rose primarily due to a change in asset mix. The Company reinvested approximately $100 million in proceeds from repayments of commercial loans into Agency securities during the quarter. Average earning asset yields benefited from repositioning the Agency portfolio into newly issued 30-year Agency RMBS and Agency CMBS assets as well as higher index rates on floating and adjustable rate non-Agency RMBS and GSE CRT securities and commercial loans.
The Company increased its average borrowings by $696.8 million (4.6%) in the third quarter of 2018 to $16.0 billion compared to average borrowings of $15.3 billion in the second quarter. Total interest expense was $91.3 million compared to total interest expense of $77.9 million during the second quarter of 2018.
The Company's debt-to-equity ratio increased to 6.4x as of September 30, 2018 from 6.1x as of June 30, 2018 primarily due to the change in asset mix discussed above. The Company's repurchase agreement debt-to-equity ratio increased to 6.6x as of September 30, 2018 from 6.5x as of June 30, 2018.
Total expenses for the third quarter of 2018 were approximately $11.8 million compared to $11.6 million for the second quarter of 2018. The ratio of annualized total expenses to average equity (1) increased to 2.26% compared to 2.22% for the second quarter.
As previously announced, the Company declared the following dividends on September 14, 2018: a common stock dividend of $0.42 per share paid on October 26, 2018 and a Series A preferred stock dividend of $0.4844 per share paid on October 25, 2018. The Company declared the following dividends on its Series B and Series C Preferred Stock on November 6, 2018 to its stockholders of record as of December 5, 2018: a Series B Preferred Stock dividend of $0.4844 per share payable on December 27, 2018 and a Series C Preferred Stock dividend of $0.46875 per share payable on December 27, 2018.

(1)
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 the 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 primarily 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 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 Thursday, November 8, 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 November 22, 2018 by calling:

866-465-2111 (North America) or 1-203-369-1428 (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, our financial performance, including our core earnings, economic return, comprehensive income and changes in our book value, 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: Brandon Burke, 800-241-5477


 
4
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 
Three Months Ended
 
Nine Months Ended
$ in thousands, except share amounts
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Interest Income

 
 
 

 

 

Mortgage-backed and credit risk transfer securities (1)
160,416

 
147,548

 
134,138

 
456,967

 
374,038

Commercial and other loans
1,672

 
4,051

 
6,251

 
9,945

 
18,036

Total interest income
162,088

 
151,599

 
140,389

 
466,912

 
392,074

Interest Expense
 
 
 
 
 
 
 
 
 
Repurchase agreements
81,763

 
69,389

 
45,907

 
210,737

 
111,926

Secured loans
9,490

 
8,471

 
5,544

 
24,888

 
13,492

Exchangeable senior notes

 

 
2,724

 
1,621

 
11,236

Total interest expense
91,253

 
77,860

 
54,175

 
237,246

 
136,654

Net interest income
70,835

 
73,739

 
86,214

 
229,666

 
255,420

Other Income (loss)
 
 
 
 
 
 
 
 
 
Gain (loss) on investments, net
(207,910
)
 
(36,377
)
 
(11,873
)
 
(404,657
)
 
(2,551
)
Equity in earnings (losses) of unconsolidated ventures
1,084

 
798

 
408

 
2,778

 
(1,280
)
Gain (loss) on derivative instruments, net
87,672

 
67,169

 
1,955

 
288,208

 
(46,096
)
Realized and unrealized credit derivative income (loss), net
4,975

 
735

 
(2,930
)
 
8,875

 
38,428

Net loss on extinguishment of debt

 

 
(1,344
)
 
(26
)
 
(6,581
)
Other investment income (loss), net
1,068

 
(2,160
)
 
2,313

 
2,010

 
6,175

Total other income (loss)
(113,111
)
 
30,165

 
(11,471
)
 
(102,812
)
 
(11,905
)
Expenses
 
 
 
 
 
 
 
 
 
Management fee – related party
10,105

 
10,102

 
9,557

 
30,428

 
27,385

General and administrative
1,673

 
1,525

 
1,697

 
4,954

 
5,389

Total expenses
11,778

 
11,627

 
11,254

 
35,382

 
32,774

Net income (loss)
(54,054
)
 
92,277

 
63,489

 
91,472

 
210,741

Net income (loss) attributable to non-controlling interest
(681
)
 
1,163

 
800

 
1,153

 
2,656

Net income (loss) attributable to Invesco Mortgage Capital Inc.
(53,373
)
 
91,114

 
62,689

 
90,319

 
208,085

Dividends to preferred stockholders
11,107

 
11,106

 
13,562

 
33,320

 
24,994

Net income (loss) attributable to common stockholders
(64,480
)
 
80,008

 
49,127

 
56,999

 
183,091

Earnings per share:
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
 
 
 
 
 
 
 
 
 
Basic
(0.58
)
 
0.72

 
0.44

 
0.51

 
1.64

Diluted
(0.58
)
 
0.72

 
0.43

 
0.51

 
1.59


(1)
The table below shows the components of mortgage-backed and credit risk transfer securities income for the periods presented.
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Coupon interest
175,696

 
164,165

 
156,635

 
506,180

 
449,971

Net premium amortization
(15,280
)
 
(16,617
)
 
(22,497
)
 
(49,213
)
 
(75,933
)
Mortgage-backed and credit risk transfer securities interest income
160,416

 
147,548

 
134,138

 
456,967

 
374,038



 
5
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
In thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Net income (loss)
(54,054
)
 
92,277

 
63,489

 
91,472

 
210,741

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
(40,554
)
 
(47,929
)
 
19,089

 
(220,800
)
 
75,011

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
134,280

 
9,889

 
7

 
153,406

 
1,508

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense
(6,422
)
 
(6,898
)
 
(6,438
)
 
(19,859
)
 
(19,105
)
Currency translation adjustments on investment in unconsolidated venture
(1,126
)
 
486

 
807

 
(328
)
 
331

Total other comprehensive income (loss)
86,178

 
(44,452
)
 
13,465

 
(87,581
)
 
57,745

Comprehensive income (loss)
32,124

 
47,825

 
76,954

 
3,891

 
268,486

Less: Comprehensive (income) loss attributable to non-controlling interest
(405
)
 
(602
)
 
(970
)
 
(48
)
 
(3,384
)
Less: Dividends to preferred stockholders
(11,107
)
 
(11,106
)
 
(13,562
)
 
(33,320
)
 
(24,994
)
Comprehensive income (loss) attributable to common stockholders
20,612

 
36,117

 
62,422

 
(29,477
)
 
240,108



 
6
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
As of
 $ in thousands except share amounts
September 30, 2018
 
December 31, 2017
ASSETS
 
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $17,473,413 and $17,560,811, respectively)
18,336,825

 
18,190,754

Commercial loans, held-for-investment
31,707

 
191,808

Cash and cash equivalents
108,223

 
88,381

Restricted cash
300

 
620

Due from counterparties
26,380

 

Investment related receivable (including pledged securities of $449,289 and $0, respectively)
528,223

 
73,217

Derivative assets, at fair value
46,214

 
6,896

Other assets
145,015

 
105,580

Total assets
19,222,887

 
18,657,256

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
14,378,518

 
14,080,801

Secured loans
1,650,000

 
1,650,000

Exchangeable senior notes, net

 
143,231

Derivative liabilities, at fair value
13,982

 
32,765

Dividends and distributions payable
50,205

 
50,193

Investment related payable
559,398

 
5,191

Accrued interest payable
25,624

 
17,845

Collateral held payable
47,687

 
7,327

Accounts payable and accrued expenses
1,620

 
2,200

Due to affiliate
10,430

 
10,825

Total liabilities
16,737,464

 
16,000,378

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

 
278,108

Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 111,652,661 and 111,624,159 shares issued and outstanding, respectively
1,116

 
1,116

Additional paid in capital
2,385,218

 
2,384,356

Accumulated other comprehensive income
174,553

 
261,029

Retained earnings (distributions in excess of earnings)
(663,007
)
 
(579,334
)
Total stockholders’ equity
2,461,204

 
2,630,491

Non-controlling interest
24,219

 
26,387

Total equity
2,485,423

 
2,656,878

Total liabilities and equity
19,222,887

 
18,657,256


(1)
See Note 16 of the Company's condensed consolidated financial statements filed in Item 1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.

 
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 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. 
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, 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 condensed 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 condensed 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 (loss) attributable to common stockholders to core earnings for the following periods:
 
Three Months Ended
 
Nine Months Ended
$ in thousands, except per share data
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Net income (loss) attributable to common stockholders
(64,480
)
 
80,008

 
49,127

 
56,999

 
183,091

Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on investments, net
207,910

 
36,377

 
11,873

 
404,657

 
2,551

Realized (gain) loss on derivative instruments, net (1)
(99,641
)
 
(36,274
)
 
(19,503
)
 
(249,493
)
 
5,808

Unrealized (gain) loss on derivative instruments, net (1)
9,206

 
(35,406
)
 
95

 
(58,101
)
 
(20,025
)
Realized and unrealized (gain) loss on GSE CRT embedded derivatives, net (2)
663

 
4,903

 
8,803

 
8,034

 
(20,904
)
(Gain) loss on foreign currency transactions, net (3)
(215
)
 
2,966

 
(1,504
)
 
937

 
(3,748
)
Amortization of net deferred (gain) loss on de-designated interest rate swaps (4) 
(6,422
)
 
(6,898
)
 
(6,438
)
 
(19,859
)
 
(19,105
)
Net loss on extinguishment of debt

 

 
1,344

 
26

 
6,581

Subtotal
111,501

 
(34,332
)
 
(5,330
)
 
86,201

 
(48,842
)
Cumulative adjustments attributable to non-controlling interest
(1,405
)
 
432

 
67

 
(1,087
)
 
616

Preferred stock dividend declared but not accumulated (5)

 

 
5,211

 

 
5,211

Core earnings attributable to common stockholders
45,616

 
46,108

 
49,075

 
142,113

 
140,076

Basic income (loss) per common share
(0.58
)
 
0.72

 
0.44

 
0.51

 
1.64

Core earnings per share attributable to common stockholders (6)
0.41

 
0.41

 
0.44

 
1.27

 
1.26

(1)
U.S. GAAP gain (loss) on derivative instruments, net on the condensed consolidated statements of operations includes the following components:
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Realized gain (loss) on derivative instruments, net
99,641

 
36,274

 
19,503

 
249,493

 
(5,808
)
Unrealized gain (loss) on derivative instruments, net
(9,206
)
 
35,406

 
(95
)
 
58,101

 
20,025

Contractual net interest expense on interest rate swaps
(2,763
)
 
(4,511
)
 
(17,453
)
 
(19,386
)
 
(60,313
)
Gain (loss) on derivative instruments, net
87,672

 
67,169

 
1,955

 
288,208

 
(46,096
)
(2)
U.S. GAAP realized and unrealized credit derivative income (loss), net on the condensed consolidated statements of operations includes the following components:

 
9
 

Exhibit 99.1

 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Realized and unrealized gain (loss) on GSE CRT embedded derivatives, net
(663
)
 
(4,903
)
 
(8,803
)
 
(8,034
)
 
20,904

GSE CRT embedded derivative coupon interest
5,638

 
5,638

 
5,873

 
16,909

 
17,524

Realized and unrealized credit derivative income (loss), net
4,975

 
735

 
(2,930
)
 
8,875

 
38,428


(3)
U.S. GAAP other investment income (loss), net on the condensed consolidated statements of operations includes the following components:
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Dividend income
853

 
807

 
809

 
2,947

 
2,427

Gain (loss) on foreign currency transactions, net
215

 
(2,966
)
 
1,504

 
(937
)
 
3,748

Other investment income (loss), net
1,068

 
(2,159
)
 
2,313

 
2,010

 
6,175

(4)
U.S. GAAP repurchase agreements interest expense on the condensed consolidated statements of operations includes the following components:
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Interest expense on repurchase agreement borrowings
88,185

 
76,287

 
52,345

 
230,596

 
131,031

Amortization of net deferred (gain) loss on de-designated interest rate swaps
(6,422
)
 
(6,898
)
 
(6,438
)
 
(19,859
)
 
(19,105
)
Repurchase agreements interest expense
81,763

 
69,389

 
45,907

 
210,737

 
111,926


(5) Preferred stock dividend declared but not accumulated is a timing adjustment related to the first dividend declaration on Series C Preferred Stock. On September 14, 2017, we declared a dividend on Series C Preferred Stock that covered the period from the date of issuance, August 16, 2017, to but not including the dividend payment date, December 27, 2017. We adjusted core earnings for the period ended September 30, 2017 to exclude the portion of the dividend declared for the period from October 1, 2017 through December 26, 2017 because we did not consider the future unaccumulated portion of the dividend a current component of our capital costs.    

(6) 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
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
162,088

 
3.53
%
 
151,599

 
3.42
%
 
140,389

 
3.22
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,638

 
0.12
%
 
5,638

 
0.13
%
 
5,873

 
0.14
%
Effective interest income
167,726

 
3.65
%
 
157,237

 
3.55
%
 
146,262

 
3.36
%
 
Nine Months Ended September 30,
 
2018
 
2017
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
466,912

 
3.45
%
 
392,074

 
3.15
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
16,909

 
0.13
%
 
17,524

 
0.14
%
Effective interest income
483,821

 
3.58
%
 
409,598

 
3.29
%
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
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
$ 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
91,253

 
2.29
%
 
77,860

 
2.04
%
 
54,175

 
1.43
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
6,422

 
0.16
%
 
6,898

 
0.18
%
 
6,438

 
0.17
%
Add: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
2,763

 
0.07
%
 
4,511

 
0.12
%
 
17,453

 
0.46
%
Effective interest expense
100,438

 
2.52
%
 
89,269

 
2.34
%
 
78,066

 
2.06
%
 
Nine Months Ended September 30,
 
2018
 
2017
$ in thousands
Reconciliation
 
Cost of Funds / Effective Cost of Funds
 
Reconciliation
 
Cost of Funds / Effective Cost of Funds
Total interest expense
237,246

 
2.02
%
 
136,654

 
1.26
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
19,859

 
0.17
%
 
19,105

 
0.18
%
Add: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
19,386

 
0.17
%
 
60,313

 
0.56
%
Effective interest expense
276,491

 
2.36
%
 
216,072

 
2.00
%


 
12
 

Exhibit 99.1

The following table reconciles 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
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
$ 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
70,835

 
1.24
 %
 
73,739

 
1.38
 %
 
86,214

 
1.79
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(6,422
)
 
(0.16
)%
 
(6,898
)
 
(0.18
)%
 
(6,438
)
 
(0.17
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,638

 
0.12
 %
 
5,638

 
0.13
 %
 
5,873

 
0.14
 %
Less: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
(2,763
)
 
(0.07
)%
 
(4,511
)
 
(0.12
)%
 
(17,453
)
 
(0.46
)%
Effective net interest income
67,288

 
1.13
 %
 
67,968

 
1.21
 %
 
68,196

 
1.30
 %

 
Nine Months Ended September 30,
 
2018
 
2017
$ in thousands
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
 
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income
229,666

 
1.43
 %
 
255,420

 
1.89
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(19,859
)
 
(0.17
)%
 
(19,105
)
 
(0.18
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
16,909

 
0.13
 %
 
17,524

 
0.14
 %
Less: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
(19,386
)
 
(0.17
)%
 
(60,313
)
 
(0.56
)%
Effective net interest income
207,330

 
1.22
 %
 
193,526

 
1.29
 %


 
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 September 30, 2018 and June 30, 2018. 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 and 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 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.

September 30, 2018
$ in thousands
Agency
RMBS and CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Investments
13,065,148

3,302,475

2,000,909

18,368,532

Cash and cash equivalents (3)
55,295

34,480

18,448

108,223

Restricted cash

300


300

Derivative assets, at fair value (4)
46,212

2


46,214

Other assets
556,914

91,814

50,890

699,618

Total assets
13,723,569

3,429,071

2,070,247

19,222,887

 
 
 
 
 
Repurchase agreements
11,252,479

1,525,347

1,600,692

14,378,518

Secured loans (5)
553,262

1,096,738


1,650,000

Derivative liabilities, at fair value (4)
13,887

95


13,982

Other liabilities
646,954

34,576

13,434

694,964

Total liabilities
12,466,582

2,656,756

1,614,126

16,737,464

 
 
 
 
 
Total equity (allocated)
1,256,987

772,315

456,121

2,485,423

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

(55,924
)

(55,924
)
Collateral pledged against secured loans
(636,506
)
(1,261,752
)

(1,898,258
)
Secured loans
553,262

1,096,738


1,650,000

Equity related to repurchase agreement debt
1,173,743

551,377

456,121

2,181,241

Debt-to-equity ratio (7)
9.4

3.4

3.5

6.4

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

2.8

3.5

6.6

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

June 30, 2018
$ in thousands
Agency
RMBS and CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Investments
12,361,217

3,307,841

2,070,733

17,739,791

Cash and cash equivalents (3)
33,312

23,077

13,865

70,254

Derivative assets, at fair value (4)
44,122

3,387


47,509

Other assets
86,210

64,389

6,622

157,221

Total assets
12,524,861

3,398,694

2,091,220

18,014,775

 
 
 
 
 
Repurchase agreements
10,671,351

1,450,627

1,580,343

13,702,321

Secured loans (5)
555,099

1,094,901


1,650,000

Derivative liabilities, at fair value (4)
6,071



6,071

Other liabilities
94,556

29,017

21,037

144,610

Total liabilities
11,327,077

2,574,545

1,601,380

15,503,002

 
 
 
 
 
Total equity (allocated)
1,197,784

824,149

489,840

2,511,773

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

(157,905
)

(157,905
)
Collateral pledged against secured loans
(642,808
)
(1,267,901
)

(1,910,709
)
Secured loans
555,099

1,094,901


1,650,000

Equity related to repurchase agreement debt
1,110,075

493,244

489,840

2,093,159

Debt-to-equity ratio (7)
9.4

3.1

3.2

6.1

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

2.9

3.2

6.5

(1)
Investments in non-Agency 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 each asset class.
(4)
Derivative assets and liabilities are allocated based on the hedging strategy for each asset class.
(5)
Secured loans are allocated based on amount of collateral pledged.
(6)
Net equity in unsecured assets includes commercial loans, investments in unconsolidated joint ventures and other.
(7)
Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements and secured loans) 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
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Average Balances (1):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
1,613,967

 
2,648,396

 
3,223,684

 
2,376,050

 
3,370,401

30 year fixed-rate, at amortized cost
9,362,170

 
7,805,977

 
6,486,613

 
8,338,593

 
5,274,103

ARM, at amortized cost
181,721

 
220,960

 
258,304

 
211,147

 
275,010

Hybrid ARM, at amortized cost
1,303,070

 
1,595,131

 
1,847,709

 
1,520,365

 
2,043,497

Agency - CMO, at amortized cost
242,133

 
254,642

 
287,364

 
256,770

 
308,159

Agency CMBS, at amortized cost
516,992

 
50,179

 

 
190,951

 

Non-Agency CMBS, at amortized cost
3,236,226

 
3,177,398

 
2,920,587

 
3,202,556

 
2,721,306

Non-Agency RMBS, at amortized cost
1,055,671

 
1,030,949

 
1,339,639

 
1,056,962

 
1,537,013

GSE CRT, at amortized cost
762,235

 
769,821

 
790,886

 
769,546

 
784,301

Commercial loans, at amortized cost
55,607

 
178,080

 
279,840

 
137,028

 
277,642

Loan participation interest
29,875

 

 

 
10,068

 

Average earning assets
18,359,667

 
17,731,533

 
17,434,626

 
18,070,036

 
16,591,432

Average Earning Asset Yields (2):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate
2.59
%
 
1.99
%
 
1.95
%
 
2.15
%
 
1.99
%
30 year fixed-rate
2.96
%
 
2.95
%
 
2.73
%
 
2.96
%
 
2.73
%
ARM
2.49
%
 
2.43
%
 
2.35
%
 
2.41
%
 
2.31
%
Hybrid ARM
2.57
%
 
2.28
%
 
2.19
%
 
2.35
%
 
2.26
%
Agency - CMO
3.20
%
 
3.04
%
 
2.71
%
 
2.90
%
 
1.16
%
Agency CMBS
2.85
%
 
3.63
%
 
%
 
3.34
%
 
%
Non-Agency CMBS
4.88
%
 
4.95
%
 
4.52
%
 
4.89
%
 
4.40
%
Non-Agency RMBS
7.17
%
 
7.12
%
 
6.56
%
 
7.12
%
 
5.97
%
GSE CRT (3)
3.56
%
 
3.37
%
 
2.74
%
 
3.31
%
 
2.51
%
Commercial loans
10.05
%
 
9.12
%
 
8.86
%
 
9.45
%
 
8.69
%
Loan participation interest
5.87
%
 
%
 
%
 
5.87
%
 
%
Average earning asset yields
3.53
%
 
3.42
%
 
3.22
%
 
3.45
%
 
3.15
%
(1)
Average balances for each period are based on weighted month-end average earning assets.
(2)
Average earning asset yields for the period are calculated by dividing interest income, including amortization of premiums and discounts, by average month-end earning assets based on 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
 
Nine Months Ended
$ in thousands
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Average Borrowings (1):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
11,326,323

 
11,146,252

 
10,919,243

 
11,299,625

 
10,105,277

Agency CMBS
472,011

 
43,984

 

 
173,727

 

Non-Agency CMBS (2)
2,575,504

 
2,556,166

 
2,367,648

 
2,558,317

 
2,260,356

Non-Agency RMBS
895,504

 
861,598

 
1,062,528

 
882,784

 
1,208,702

GSE CRT
681,079

 
667,972

 
661,095

 
674,560

 
639,234

Exchangeable senior notes

 

 
185,930

 
38,300

 
256,261

        Loan participation interest
22,406

 

 

 
7,551

 

Total average borrowings
15,972,827

 
15,275,972

 
15,196,444

 
15,634,864

 
14,469,830

Maximum borrowings during the period (3)
16,078,387

 
15,352,321

 
15,896,218

 
16,078,387

 
15,896,218

Average Cost of Funds (4):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
2.24
 %
 
1.98
 %
 
1.28
 %
 
1.96
 %
 
1.09
 %
Agency CMBS
2.26
 %
 
2.10
 %
 
 %
 
2.22
 %
 
 %
Non-Agency CMBS (2)
2.88
 %
 
2.68
 %
 
1.91
 %
 
2.61
 %
 
1.63
 %
Non-Agency RMBS
3.40
 %
 
3.19
 %
 
2.67
 %
 
3.17
 %
 
2.42
 %
GSE CRT
3.26
 %
 
3.16
 %
 
2.69
 %
 
3.10
 %
 
2.50
 %
Exchangeable senior notes
 %
 
 %
 
5.86
 %
 
5.58
 %
 
5.85
 %
        Loan participation interest
3.83
 %
 
 %
 
 %
 
3.83
 %
 
 %
Cost of funds
2.29
 %
 
2.04
 %
 
1.43
 %
 
2.02
 %
 
1.26
 %
Interest rate swaps average fixed pay rate (5) 
2.35
 %
 
2.18
 %
 
2.09
 %
 
2.26
 %
 
2.12
 %
Interest rate swaps average floating receive rate (6) 
(2.25
)%
 
(2.00
)%
 
(1.24
)%
 
(1.98
)%
 
(1.07
)%
Effective cost of funds (non-GAAP measure) (7)
2.52
 %
 
2.34
 %
 
2.06
 %
 
2.36
 %
 
2.00
 %
 
 
 
 
 
 
 
 
 
 
Average Equity (8)
2,085,263

 
2,093,426

 
2,206,307

 
2,099,093

 
2,173,671

Average debt-to-equity ratio (average during period)
7.7
x
 
7.3x

 
6.9
x
 
7.4
x
 
6.7
x
Debt-to-equity ratio (as of period end)
6.4
x
 
6.1x

 
6.0
x
 
6.4
x
 
6.0
x
(1)
Average borrowings for each period are based on weighted month-end balances.
(2)
Agency RMBS and non-Agency 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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