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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): February 20, 2019
 
396815266_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, 2019, Invesco Mortgage Capital Inc. (the “registrant”) issued a press release announcing its financial results for the quarter ended December 31, 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: February 20, 2019



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

396815266_ivrwordmarkmainimage.jpg
Press Release
For immediate release


Brandon Burke, Investor Relations
800-241-5477

Invesco Mortgage Capital Inc. Reports Fourth Quarter 2018 Financial Results
Active management drives increase in portfolio yield
Fundamentals remain strong across diversified portfolio
Q4 common stock dividend of $0.42 per share



Atlanta - February 20, 2019 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced financial results for the quarter ended December 31, 2018.

Highlights:
Q4 2018 net loss attributable to common stockholders of $172.2 million or $1.54 basic loss per common share compared to a net loss of $64.5 million or $0.58 basic loss per common share in Q3 2018
Q4 2018 core earnings* of $50.8 million or core earnings per share ("EPS") of $0.46 compared to $45.6 million or core EPS of $0.41 in Q3 2018
Q4 2018 book value per diluted common share** of $15.27 compared to $16.83 at Q3 2018 and $18.35 at Q4 2017
Q4 2018 common stock dividend maintained at $0.42 per share

"We are pleased to announce core earnings* of $0.46 per common share for the fourth quarter, up from $0.41 last quarter. During the second half of 2018, we began to reposition our Agency portfolio into newly issued 30 year Agency RMBS and Agency CMBS to take advantage of accretive opportunities in those sectors. Our portfolio repositioning drove an increase in our weighted average asset yield to 4.02% as of December 31, 2018, up 24 basis points from 3.78% as of September 30, 2018. As a result of the heightened volatility across nearly all Agency and credit assets during the fourth quarter, our book value** ended the year at $15.27, down 9.3% for the quarter, before recovering approximately half the decline during the month of January. The additional capital raised from our common stock offering in early February allowed us to take advantage of accretive opportunities in our target assets, given the attractive entry points as a result of the fourth quarter volatility" said John Anzalone, Chief Executive Officer.

* 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 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 (no shares as of December 31, 2018; 1,425,000 shares as of September 30, 2018 and December 31, 2017, respectively).


 
1
 

Exhibit 99.1

Key performance indicators for the quarters ended December 31, 2018 and September 30, 2018 are summarized in the table below.
($ in millions, except share amounts)
Q4 ‘18
Q3 ‘18
Variance
Average Balances
(unaudited)
(unaudited)
 
Average earning assets (at amortized cost)

$18,144.7


$18,359.7


($215.0
)
Average borrowings

$15,833.3


$15,972.8


($139.5
)
Average equity

$1,947.3


$2,085.3


($138.0
)
 
 
 
 
U.S. GAAP Financial Measures
 
 
 
Total interest income

$176.1


$162.1


$14.0

Total interest expense

$101.6


$91.3


$10.3

Net interest income

$74.5


$70.8


$3.7

Total expenses

$12.4


$11.8


$0.6

Net income (loss) attributable to common stockholders

($172.2
)

($64.5
)

($107.7
)
 
 
 
 
Average earning asset yields
3.88
%
3.53
%
0.35
%
Average cost of funds
2.57
%
2.29
%
0.28
%
Average net interest rate margin
1.31
%
1.24
%
0.07
%
Period-end weighted average asset yields*
4.02
%
3.78
%
0.24
%
Period-end weighted average cost of funds
2.79
%
2.50
%
0.29
%
Period-end weighted average net interest rate margin
1.23
%
1.28
%
(0.05
%)
Book value per diluted common share**

$15.27


$16.83


($1.56
)
Loss per common share (basic)

($1.54
)

($0.58
)

($0.96
)
Loss per common share (diluted)

($1.54
)

($0.58
)

($0.96
)
Debt-to-equity ratio
6.7
x
6.4
x
0.3
x
 
 
 
 
Non-GAAP Financial Measures***
 
 
 
Core earnings

$50.8


$45.6


$5.2

Effective interest income

$181.7


$167.7


$14.0

Effective interest expense

$108.2


$100.4


$7.8

Effective net interest income

$73.4


$67.3


$6.1

 
 
 
 
Effective yield
4.00
%
3.65
%
0.35
%
Effective cost of funds
2.74
%
2.52
%
0.22
%
Effective interest rate margin
1.26
%
1.13
%
0.13
%
 
 
 
 
Core earnings per common share

$0.46


$0.41


$0.05

Repurchase agreement debt-to-equity ratio
7.0
x
6.6
x
0.4
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 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 (no shares as of December 31, 2018; 1,425,000 shares as of September 30, 2018 and December 31, 2017, respectively).
*** 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 loss attributable to common stockholders for the fourth quarter of 2018 was $172.2 million, compared to net loss attributable to common stockholders of $64.5 million for the third quarter. The net loss in the fourth quarter was primarily due to a $293.5 million net loss on derivative instruments that was only partially offset by a $77.0 million net gain on investments and $74.5 million of net interest income, whereas the Company's third quarter loss was primarily driven by a $140.7 million realized loss on the sale of investments. Fourth quarter derivative losses resulted from declining interest rates over the quarter while corresponding gains on investments were limited by higher interest rate spreads. Book value per diluted common share as of December 31, 2018 decreased to $15.27 compared to $16.83 as of September 30, 2018 reflecting net losses on derivative instruments that exceeded increases in the valuations of the Company's investment portfolio.
During the fourth quarter of 2018, the Company generated $50.8 million in core earnings compared to $45.6 million in the third quarter. Higher core earnings reflect a $6.1 million increase in effective net interest income driven by the Company's portfolio repositioning in the second half of the year.
The Company continued to reposition its portfolio during the fourth quarter 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 these sectors. The Company purchased approximately $794 million of securities during the quarter with proceeds from sales and paydowns of securities. The Company had average earning assets of $18.1 billion and interest income of $176.1 million in the fourth quarter compared to average earning assets of $18.4 billion and interest income of $162.1 million during the third quarter. Average earning asset yields rose 35 basis points in the fourth quarter to 3.88% from 3.53% in the third quarter reflecting slower prepayment speeds in all asset classes as well as higher yields on recently acquired 30 year Agency RMBS and Agency CMBS assets and higher index rates on floating and adjustable rate securities. As of December 31, 2018, the Company's holdings of 30 year fixed-rate Agency RMBS represented 56% of its total investment portfolio. The Company allocated 49% of its equity to Agency RMBS and Agency CMBS as of December 31, 2018 as returns on Agency RMBS and CMBS continued to be attractive compared to credit assets.
The Company had average borrowings of $15.8 billion and total interest expense of $101.6 million in the fourth quarter compared to average borrowings of $16.0 billion and total interest expense of $91.3 million during the third quarter. The Company's average cost of funds rose to 2.57% in the fourth quarter from 2.29% in the third quarter. The increase in the Company's cost of funds reflects higher repurchase agreement borrowing rates leading up to the December 2018 increase in the federal funds target interest rate.
The Company's debt-to-equity ratio was 6.7x as of December 31, 2018 compared to 6.4x as of September 30, 2018 reflecting a $198.7 million decrease in equity driven by losses on derivative instruments in the fourth quarter and the redemption of Invesco Ltd.'s wholly-owned subsidiary's minority interest in the Company's operating partnership.
Total expenses for the fourth quarter were approximately $12.4 million compared to $11.8 million for the third quarter. The ratio of annualized total expenses to average equity* for the fourth quarter was 2.55%.
As previously announced, the Company completed a public offering of 16.1 million shares of common stock at the price of $15.73 per share on February 7, 2019. Total net proceeds were approximately $249.7 million after deducting estimated offering expenses.
In addition, the Company declared the following dividends on December 14, 2018: a common stock dividend of $0.42 per share paid on January 28, 2019 to its stockholders of record as of December 26, 2018 and a Series A preferred stock dividend of $0.4844 per share paid on January 25, 2019 to its stockholders of record as of January 1, 2019. The Company declared the following dividends on its Series B and Series C Preferred Stock on February 14, 2019 to its stockholders of record as of March 5, 2019: a Series B Preferred Stock dividend of $0.4844 per share payable on March 27, 2019 and a Series C Preferred Stock dividend of $0.46875 per share payable on March 27, 2019.

 
3
 

Exhibit 99.1

*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 weighted month-end balance of total equity excluding equity attributable to preferred stockholders.

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 other mortgage-related assets. 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

Invesco Mortgage Capital Inc. (NYSE: IVR) will announce its fourth quarter 2018 results on Wednesday, February 20th, at approximately 4:30 pm ET. Members of the investment community and the general public are invited to listen to the Company’s earnings conference call on Thursday, February 21, 2019, 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
Webcast link: << https://services.choruscall.com/links/ivr190220.html >>

An audio replay will be available until 5:00 pm ET on March 7, 2019 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: Brandon Burke, 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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
Interest Income
 
 
 
 
 
 
 
 
 
Mortgage-backed and credit risk transfer securities
174,511

 
160,416

 
147,509

 
631,478

 
521,547

Commercial and other loans
1,593

 
1,672

 
5,472

 
11,538

 
23,508

Total interest income
176,104

 
162,088

 
152,981

 
643,016

 
545,055

Interest Expense
 
 
 
 
 
 
 
 
 
Repurchase agreements
91,057

 
81,763

 
51,955

 
301,794

 
163,881

Secured loans
10,565

 
9,490

 
5,878

 
35,453

 
19,370

Exchangeable senior notes

 

 
2,104

 
1,621

 
13,340

Total interest expense
101,622

 
91,253

 
59,937

 
338,868

 
196,591

Net interest income
74,482

 
70,835

 
93,044

 
304,148

 
348,464

Other Income (loss)
 
 
 
 
 
 
 
 
 
Gain (loss) on investments, net
76,957

 
(207,910
)
 
(17,153
)
 
(327,700
)
 
(19,704
)
Equity in earnings (losses) of unconsolidated ventures
624

 
1,084

 
(47
)
 
3,402

 
(1,327
)
Gain (loss) on derivative instruments, net
(293,485
)
 
87,672

 
64,251

 
(5,277
)
 
18,155

Realized and unrealized credit derivative income (loss), net
(9,026
)
 
4,975

 
13,220

 
(151
)
 
51,648

Net loss on extinguishment of debt, net

 

 
(233
)
 
(26
)
 
(6,814
)
Other investment income (loss), net
850

 
1,068

 
1,206

 
2,860

 
7,381

Total other income (loss)
(224,080
)
 
(113,111
)
 
61,244

 
(326,892
)
 
49,339

Expenses
 
 
 
 
 
 
 
 
 
Management fee – related party
10,294

 
10,105

 
10,171

 
40,722

 
37,556

General and administrative
2,116

 
1,673

 
1,801

 
7,070

 
7,190

Total expenses
12,410

 
11,778

 
11,972

 
47,792

 
44,746

Net income
(162,008
)
 
(54,054
)
 
142,316

 
(70,536
)
 
353,057

Net income (loss) attributable to non-controlling interest
(899
)
 
(681
)
 
1,794

 
254

 
4,450

Net income (loss) attributable to Invesco Mortgage Capital Inc.
(161,109
)
 
(53,373
)
 
140,522

 
(70,790
)
 
348,607

Dividends to preferred stockholders
11,106

 
11,107

 
3,086

 
44,426

 
28,080

Net income (loss) attributable to common stockholders
(172,215
)
 
(64,480
)
 
137,436

 
(115,216
)
 
320,527

Earnings per share:
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
 
 
 
 
 
 
 
 
 
Basic
(1.54
)
 
(0.58
)
 
1.23

 
(1.03
)
 
2.87

Diluted
(1.54
)
 
(0.58
)
 
1.18

 
(1.03
)
 
2.75

(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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
Coupon interest
183,059

 
175,696

 
166,726

 
689,240

 
616,697

Net premium amortization
(8,548
)
 
(15,280
)
 
(19,217
)
 
(57,762
)
 
(95,150
)
Mortgage-backed and credit risk transfer securities interest income
174,511

 
160,416

 
147,509

 
631,478

 
521,547


 
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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
 
 
Net income
(162,008
)
 
(54,054
)
 
142,316

 
(70,536
)
 
353,057

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
10,376

 
(40,554
)
 
(84,896
)
 
(210,424
)
 
(9,885
)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
39,756

 
134,280

 

 
193,162

 
1,508

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense
(5,980
)
 
(6,422
)
 
(6,438
)
 
(25,839
)
 
(25,544
)
Currency translation adjustments on investment in unconsolidated venture
(119
)
 
(1,126
)
 
531

 
(447
)
 
863

Total other comprehensive income (loss)
44,033

 
86,178

 
(90,803
)
 
(43,548
)
 
(33,058
)
Comprehensive income (loss)
(117,975
)
 
32,124

 
51,513

 
(114,084
)
 
319,999

Less: Comprehensive income (loss) attributable to non-controlling interest
1,027

 
(405
)
 
(648
)
 
979

 
(4,032
)
Less: Dividends to preferred stockholders
(11,106
)
 
(11,107
)
 
(3,086
)
 
(44,426
)
 
(28,080
)
Comprehensive income (loss) attributable to common stockholders
(128,054
)
 
20,612

 
47,779

 
(157,531
)
 
287,887





 
6
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
As of
 
December 31, 2018
 
December 31, 2017
In thousands except share amounts
 
ASSETS
 
 
 
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $17,082,825 and $17,560,811, respectively)
17,396,642

 
18,190,754

Commercial loans, held-for-investment
31,582

 
191,808

Cash and cash equivalents
135,617

 
88,381

Restricted cash

 
620

Due from counterparties
13,500

 

Investment related receivable
66,598

 
73,217

Derivative assets, at fair value
15,089

 
6,896

Other assets
154,477

 
105,580

Total assets
17,813,505

 
18,657,256

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
13,602,484

 
14,080,801

Secured loans
1,650,000

 
1,650,000

Exchangeable senior notes

 
143,231

Derivative liabilities, at fair value
23,390

 
32,765

Dividends and distributions payable
49,578

 
50,193

Investment related payable
132,096

 
5,191

Accrued interest payable
37,620

 
17,845

Collateral held payable
18,083

 
7,327

Accounts payable and accrued expenses
1,694

 
2,200

Due to affiliate
11,863

 
10,825

Total liabilities
15,526,808

 
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; 111,584,996 and 111,624,159 shares issued and outstanding, respectively
1,115

 
1,116

Additional paid in capital
2,383,532

 
2,384,356

Accumulated other comprehensive income
220,813

 
261,029

Retained earnings (distributions in excess of earnings)
(882,087
)
 
(579,334
)
Total stockholders’ equity
2,286,697

 
2,630,491

Non-controlling interest

 
26,387

Total equity
2,286,697

 
2,656,878

Total liabilities and equity
17,813,505

 
18,657,256


(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, 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 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, 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 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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
$ in thousands, except per share data
 
 
 
 
Net income (loss) attributable to common stockholders
(172,215
)
 
(64,480
)
 
137,436

 
(115,216
)
 
320,527

Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on investments, net
(76,957
)
 
207,910

 
17,153

 
327,700

 
19,704

Realized (gain) loss on derivative instruments, net (1)
252,323

 
(99,641
)
 
(73,646
)
 
2,830

 
(67,838
)
Unrealized (gain) loss on derivative instruments, net (1)
40,533

 
9,206

 
(7,368
)
 
(17,568
)
 
(27,393
)
Realized and unrealized (gain) loss on GSE CRT embedded derivatives, net (2)
14,595

 
663

 
(7,401
)
 
22,629

 
(28,305
)
(Gain) loss on foreign currency transactions,
net (3)
(7
)
 
(215
)
 
(387
)
 
930

 
(4,134
)
Amortization of net deferred (gain) loss on de-designated interest rate swaps (4)
(5,980
)
 
(6,422
)
 
(6,438
)
 
(25,839
)
 
(25,544
)
Net loss on extinguishment of debt

 

 
233

 
26

 
6,814

Subtotal
224,507

 
111,501

 
(77,854
)
 
310,708

 
(126,696
)
Cumulative adjustments attributable to non-controlling interest
(1,449
)
 
(1,405
)
 
981

 
(2,536
)
 
1,597

Series B preferred stock dividend cumulative adjustment (5)

 

 
(2,870
)
 

 
(2,870
)
Series C preferred stock dividend declared but not accumulated (6)

 

 
(5,211
)
 

 

Core earnings
50,843

 
45,616

 
52,482

 
192,956

 
192,558

Basic earnings (loss) per common share
(1.54
)
 
(0.58
)
 
1.23

 
(1.03
)
 
2.87

Core earnings per share attributable to common stockholders (7)
0.46

 
0.41

 
0.47

 
1.73

 
1.73


(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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
$ in thousands
 
 
 
 
Realized gain (loss) on derivative instruments, net
(252,323
)
 
99,641

 
73,646

 
(2,830
)
 
67,838

Unrealized gain (loss) on derivative instruments, net
(40,533
)
 
(9,206
)
 
7,368

 
17,568

 
27,393

Contractual net interest expense
(629
)
 
(2,763
)
 
(16,763
)
 
(20,015
)
 
(77,076
)
Gain (loss) on derivative instruments, net
(293,485
)
 
87,672

 
64,251

 
(5,277
)
 
18,155



 
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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
$ in thousands
 
 
 
 
Realized and unrealized gain (loss) on GSE CRT embedded derivatives, net
(14,595
)
 
(663
)
 
7,401

 
(22,629
)
 
28,305

GSE CRT embedded derivative coupon interest
5,569

 
5,638

 
5,819

 
22,478

 
23,343

Realized and unrealized credit derivative income (loss), net
(9,026
)
 
4,975

 
13,220

 
(151
)
 
51,648


(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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
$ in thousands
 
 
 
 
Dividend income
843

 
853

 
819

 
3,790

 
3,247

Gain (loss) on foreign currency transactions, net
7

 
215

 
387

 
(930
)
 
4,134

Other investment income (loss), net
850

 
1,068

 
1,206

 
2,860

 
7,381


(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, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
$ in thousands
 
 
 
 
Interest expense on repurchase agreements outstanding
97,037

 
88,185

 
58,393

 
327,633

 
189,425

Amortization of net deferred (gain) loss on de-designated interest rate swaps
(5,980
)
 
(6,422
)
 
(6,438
)
 
(25,839
)
 
(25,544
)
Repurchase agreements interest expense
91,057

 
81,763

 
51,955

 
301,794

 
163,881


(5)
Cumulative dividends are charged to retained earnings when declared or earned under U.S. GAAP. Prior to 2017, the Company declared quarterly dividends on its Series B Preferred Stock prior to dividends accumulating.  As of September 14, 2017, the Company had declared cumulative dividends on its 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. 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 its 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. 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 reduced 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, 2018
 
Three Months Ended 
 September 30, 2018
 
Three Months Ended December 31, 2017
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
176,104

 
3.88
%
 
162,088

 
3.53
%
 
152,981

 
3.34
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,569

 
0.12
%
 
5,638

 
0.12
%
 
5,819

 
0.12
%
Effective interest income
181,673

 
4.00
%
 
167,726

 
3.65
%
 
158,800

 
3.46
%
 
Years Ended December 31,
 
2018
 
2017
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
643,016

 
3.55
%
 
545,055

 
3.20
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
22,478

 
0.13
%
 
23,343

 
0.14
%
Effective interest income
665,494

 
3.68
%
 
568,398

 
3.34
%

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, 2018
 
Three Months Ended 
 September 30, 2018
 
Three Months Ended December 31, 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
101,622

 
2.57
%
 
91,253

 
2.29
%
 
59,937

 
1.51
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
5,980

 
0.15
%
 
6,422

 
0.16
%
 
6,438

 
0.16
%
Add: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
629

 
0.02
%
 
2,763

 
0.07
%
 
16,763

 
0.42
%
Effective interest expense
108,231

 
2.74
%
 
100,438

 
2.52
%
 
83,138

 
2.09
%
 
Years Ended December 31,
 
2018
 
2017
$ in thousands
Reconciliation
 
Cost of Funds / Effective Cost of Funds
 
Reconciliation
 
Cost of Funds / Effective Cost of Funds
Total interest expense
338,868

 
2.16
%
 
196,591

 
1.33
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
25,839

 
0.16
%
 
25,544

 
0.17
%
Add: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
20,015

 
0.13
%
 
77,076

 
0.52
%
Effective interest expense
384,722

 
2.45
%
 
299,211

 
2.02
%


 
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, 2018
 
Three Months Ended 
 September 30, 2018
 
Three Months Ended December 31, 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
74,482

 
1.31
 %
 
70,835

 
1.24
 %
 
93,044

 
1.83
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(5,980
)
 
(0.15
)%
 
(6,422
)
 
(0.16
)%
 
(6,438
)
 
(0.16
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,568

 
0.12
 %
 
5,638

 
0.12
 %
 
5,819

 
0.12
 %
Less: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
(629
)
 
(0.02
)%
 
(2,763
)
 
(0.07
)%
 
(16,763
)
 
(0.42
)%
Effective net interest income
73,441

 
1.26
 %
 
67,288

 
1.13
 %
 
75,662

 
1.37
 %
 
Years Ended December 31,
 
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
304,148

 
1.39
 %
 
348,464

 
1.87
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(25,839
)
 
(0.16
)%
 
(25,544
)
 
(0.17
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
22,478

 
0.13
 %
 
23,343

 
0.14
 %
Less: Contractual net interest expense on interest rate swaps recorded as gain (loss) on derivative instruments, net
(20,015
)
 
(0.13
)%
 
(77,076
)
 
(0.52
)%
Effective net interest income
280,772

 
1.23
 %
 
269,187

 
1.32
 %

 
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, 2018 and September 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) 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, 2018
$ in thousands
Agency RMBS and CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Investments
12,127,173

3,318,041

1,983,010

17,428,224

Cash and cash equivalents (3)
68,689

45,632

21,296

135,617

Derivative assets, at fair value (4)
15,089



15,089

Other assets
88,517

84,326

61,732

234,575

Total assets
12,299,468

3,447,999

2,066,038

17,813,505

 
 
 
 
 
Repurchase agreements
10,339,802

1,616,473

1,646,209

13,602,484

Secured loans (5)
600,856

1,049,144


1,650,000

Derivative liabilities, at fair value (4)
23,219

171


23,390

Other liabilities
212,057

25,819

13,058

250,934

Total liabilities
11,175,934

2,691,607

1,659,267

15,526,808

 
 
 
 
 
Total equity (allocated)
1,123,534

756,392

406,771

2,286,697

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

(55,594
)

(55,594
)
Collateral pledged against secured loans
(702,952
)
(1,227,412
)

(1,930,364
)
Secured loans
600,856

1,049,144


1,650,000

Equity related to repurchase agreement debt
1,021,438

522,530

406,771

1,950,739

Debt-to-equity ratio (7)
9.7

3.5

4.0

6.7

Repurchase agreement debt-to-equity ratio (8)
10.1

3.1

4.0

7.0

(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 class.
(5)
Secured loans are allocated based on amount of collateral pledged.
(6)
Net equity in unsecured assets includes commercial loans and investments in unconsolidated joint ventures.
(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.









September 30, 2018

 
14
 

Exhibit 99.1


$ 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 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 class.
(5)
Secured loans are allocated based on amount of collateral pledged.
(6)
Net equity in unsecured assets includes commercial loans and investments in unconsolidated joint ventures.
(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 Earning Asset Balances and Earning Asset Yields
The table below presents information related to the Company's average earning assets and average earning asset yields.
 
Three Months Ended
 
Years Ended
$ in thousands
December 31, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
Average Earning Asset Balances (1):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
533,041

 
1,613,967

 
3,080,248

 
1,911,511

 
3,297,267

30 year fixed-rate, at amortized cost
10,438,730

 
9,362,170

 
7,657,132

 
8,867,942

 
5,874,757

ARM, at amortized cost
121,367

 
181,721

 
244,284

 
188,517

 
267,265

Hybrid ARM, at amortized cost
814,945

 
1,303,070

 
1,750,982

 
1,342,560

 
1,969,767

Agency - CMO, at amortized cost
263,464

 
242,133

 
283,962

 
258,457

 
302,060

Agency CMBS, at amortized cost
781,557

 
516,992

 

 
339,816

 

Non-Agency CMBS, at amortized cost
3,296,258

 
3,236,226

 
3,105,896

 
3,226,174

 
2,818,244

Non-Agency RMBS, at amortized cost
1,051,883

 
1,055,671

 
1,158,180

 
1,055,682

 
1,441,527

GSE CRT, at amortized cost
760,318

 
762,235

 
783,910

 
767,220

 
784,203

Commercial loans, at amortized cost
31,624

 
55,607

 
248,570

 
110,461

 
270,314

Loan participation interest
51,468

 
29,875

 

 
20,503

 

Average earning assets
18,144,655

 
18,359,667

 
18,313,164

 
18,088,843

 
17,025,404


Average Earning Asset Yields (2):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate
3.17
%
 
2.59
%
 
1.98
%
 
2.23
%
 
1.98
%
30 year fixed-rate
3.41
%
 
2.96
%
 
2.90
%
 
3.09
%
 
2.79
%
ARM
2.58
%
 
2.49
%
 
2.36
%
 
2.44
%
 
2.32
%
Hybrid ARM
2.66
%
 
2.57
%
 
2.25
%
 
2.40
%
 
2.26
%
Agency - CMO
3.34
%
 
3.20
%
 
2.74
%
 
3.01
%
 
1.54
%
Agency CMBS
3.19
%
 
2.85
%
 
%
 
3.30
%
 
%
Non-Agency CMBS
4.95
%
 
4.88
%
 
4.77
%
 
4.91
%
 
4.50
%
Non-Agency RMBS
7.07
%
 
7.17
%
 
7.18
%
 
7.11
%
 
6.22
%
GSE CRT (3)
3.67
%
 
3.56
%
 
2.79
%
 
3.40
%
 
2.58
%
Commercial loans
10.78
%
 
10.05
%
 
8.73
%
 
9.54
%
 
8.70
%
Loan participation interest
6.04
%
 
5.87
%
 
%
 
6.10
%
 
%
Average earning asset yields
3.88
%
 
3.53
%
 
3.34
%
 
3.55
%
 
3.20
%
(1)
Average earning asset 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 earnings 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 Cost of Funds
The table below presents information related to the Company's average borrowings and average cost of funds.
 
Three Months Ended
 
Years Ended
$ in thousands
December 31, 2018
 
September 30, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
Average Borrowings (1):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
10,819,707

 
11,326,323

 
11,649,089

 
11,178,636

 
10,494,355

Agency CMBS
718,436

 
472,011

 

 
311,024

 

Non-Agency CMBS(2)
2,670,071

 
2,575,504

 
2,511,435

 
2,586,509

 
2,323,689

Non-Agency RMBS
900,036

 
895,504

 
947,117

 
887,132

 
1,142,769

GSE CRT
686,404

 
681,079

 
654,453

 
677,545

 
643,070

Exchangeable senior notes

 

 
147,498

 
28,646

 
228,846

Loan participation interest
38,601

 
22,406

 

 
15,377

 

Total average borrowings
15,833,255

 
15,972,827

 
15,909,592

 
15,684,869

 
14,832,729

Maximum borrowings during the period (3)
16,144,062

 
16,078,387

 
15,959,127

 
16,144,062

 
15,959,127


Average Cost of Funds (4):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
2.52
 %
 
2.24
 %
 
1.40
 %
 
2.10
 %
 
1.18
 %
Agency CMBS 
2.40
 %
 
2.26
 %
 
 %
 
2.31
 %
 
 %
Non-Agency CMBS(2)
3.11
 %
 
2.88
 %
 
2.00
 %
 
2.74
 %
 
1.73
 %
Non-Agency RMBS
3.49
 %
 
3.40
 %
 
2.74
 %
 
3.25
 %
 
2.49
 %
GSE CRT
3.47
 %
 
3.26
 %
 
2.71
 %
 
3.19
 %
 
2.55
 %
Exchangeable senior notes
 %
 
 %
 
5.71
 %
 
5.58
 %
 
5.83
 %
Loan participation interest
4.04
 %
 
3.83
 %
 
 %
 
4.04
 %
 
 %
Cost of funds
2.57
 %
 
2.29
 %
 
1.51
 %
 
2.16
 %
 
1.33
 %
Interest rate swaps average fixed pay rate (5)
2.19
 %
 
2.35
 %
 
2.08
 %
 
2.30
 %
 
2.11
 %
Interest rate swaps average floating receive rate (6)
(2.17
)%
 
(2.25
)%
 
(1.32
)%
 
(2.10
)%
 
(1.14
)%
Effective cost of funds (non-GAAP measure) (7)
2.74
 %
 
2.52
 %
 
2.09
 %
 
2.45
 %
 
2.02
 %
 
 
 
 
 
 
 
 
 
 
Debt-to-equity ratio (as of period end)
6.7
x
 
6.4x

 
6.0x

 
6.7
x
 
6.0x

(1)
Average borrowings for each period are based on weighted month-end balances; all percentages are annualized.
(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.”


 
17
 
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