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Section 1: 10-Q (10-Q)

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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________ 
FORM 10-Q 
_______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number 001-34385
399096794_ivrmainimageinblacka07.jpg
Invesco Mortgage Capital Inc.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________
Maryland
 
26-2749336
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
1555 Peachtree Street, N.E., Suite 1800,
 

Atlanta,
Georgia
 
30309
(Address of Principal Executive Offices)
 
(Zip Code)
(404) 892-0896
(Registrant’s Telephone Number, Including Area Code) 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
 
IVR
 
New York Stock Exchange
7.75% Series A Cumulative Redeemable Preferred Stock
 
IVRpA
 
New York Stock Exchange
7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock
 
IVRpB
 
New York Stock Exchange
7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock
 
IVRpC
 
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
  
Accelerated filer
 
Non-Accelerated filer
 
 
  
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
 
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
As of July 31, 2019, there were 128,795,528 outstanding shares of common stock of Invesco Mortgage Capital Inc.


Table of Contents


INVESCO MORTGAGE CAPITAL INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.


Table of Contents


PART I
ITEM 1.
FINANCIAL STATEMENTS
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
As of
 $ in thousands except share amounts
June 30, 2019
 
December 31, 2018
ASSETS
 
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $20,848,269 and $17,082,825, respectively)
21,536,047

 
17,396,642

Cash and cash equivalents
99,620

 
135,617

Restricted cash
55,271

 

Due from counterparties
21,041

 
13,500

Investment related receivable
141,989

 
66,598

Derivative assets, at fair value
10,067

 
15,089

Other assets
174,043

 
186,059

Total assets
22,038,078

 
17,813,505

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
17,075,065

 
13,602,484

Secured loans
1,650,000

 
1,650,000

Derivative liabilities, at fair value
36,969

 
23,390

Dividends and distributions payable
60,671

 
49,578

Investment related payable
462,060

 
132,096

Accrued interest payable
55,002

 
37,620

Collateral held payable
14,939

 
18,083

Accounts payable and accrued expenses
3,144

 
1,694

Due to affiliate
10,127

 
11,863

Total liabilities
19,367,977

 
15,526,808

Commitments and contingencies (See Note 14):

 

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; 128,795,528 and 111,584,996 shares issued and outstanding, respectively
1,287

 
1,115

Additional paid in capital
2,650,329

 
2,383,532

Accumulated other comprehensive income
318,013

 
220,813

Retained earnings (distributions in excess of earnings)
(862,852
)
 
(882,087
)
Total stockholders’ equity
2,670,101

 
2,286,697

Total liabilities and stockholders' equity
22,038,078

 
17,813,505


The accompanying notes are an integral part of these condensed consolidated financial statements.

 
1
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
$ in thousands, except share amounts
2019
 
2018
 
2019
 
2018
Interest Income
 
 
 
 
 
 
 
Mortgage-backed and credit risk transfer securities
200,737

 
147,548

 
386,229

 
296,551

Commercial and other loans
1,484

 
4,051

 
3,066

 
8,273

Total interest income
202,221

 
151,599

 
389,295

 
304,824

Interest Expense
 
 
 
 
 
 
 
Repurchase agreements
117,978

 
69,389

 
219,853

 
128,974

Secured loans
11,258

 
8,471

 
22,402

 
15,398

Exchangeable senior notes

 

 

 
1,621

Total interest expense
129,236

 
77,860

 
242,255

 
145,993

Net interest income
72,985

 
73,739

 
147,040

 
158,831

Other Income (loss)
 
 
 
 
 
 
 
Gain (loss) on investments, net
302,182

 
(36,377
)
 
570,564

 
(196,747
)
Equity in earnings (losses) of unconsolidated ventures
702

 
798

 
1,394

 
1,694

Gain (loss) on derivative instruments, net
(344,733
)
 
67,169

 
(546,193
)
 
200,536

Realized and unrealized credit derivative income (loss), net
(2,438
)
 
735

 
5,446

 
3,900

Net loss on extinguishment of debt

 

 

 
(26
)
Other investment income (loss), net
1,007

 
(2,160
)
 
2,036

 
942

Total other income (loss)
(43,280
)
 
30,165

 
33,247

 
10,299

Expenses
 
 
 
 
 
 
 
Management fee – related party
9,370

 
10,102

 
18,904

 
20,323

General and administrative
1,999

 
1,525

 
4,257

 
3,281

Total expenses
11,369

 
11,627

 
23,161

 
23,604

Net income
18,336

 
92,277

 
157,126

 
145,526

Net income attributable to non-controlling interest

 
1,163

 

 
1,834

Net income attributable to Invesco Mortgage Capital Inc.
18,336

 
91,114

 
157,126

 
143,692

Dividends to preferred stockholders
11,106

 
11,106

 
22,213

 
22,213

Net income attributable to common stockholders
7,230

 
80,008

 
134,913

 
121,479

Earnings per share:
 
 
 
 
 
 
 
Net income attributable to common stockholders
 
 
 
 
 
 
 
Basic
0.06

 
0.72

 
1.08

 
1.09

Diluted
0.06

 
0.72

 
1.08

 
1.08


The accompanying notes are an integral part of these condensed consolidated financial statements.

 
2
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
$ in thousands
2019
 
2018
 
2019
 
2018
Net income
18,336

 
92,277

 
157,126

 
145,526

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
47,188

 
(47,929
)
 
99,537

 
(180,246
)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
(121
)
 
9,889

 
10,026

 
19,126

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense
(5,916
)
 
(6,898
)
 
(11,767
)
 
(13,437
)
Currency translation adjustments on investment in unconsolidated venture
(320
)
 
486

 
(596
)
 
798

Total other comprehensive income (loss)
40,831

 
(44,452
)
 
97,200

 
(173,759
)
Comprehensive income (loss)
59,167

 
47,825

 
254,326

 
(28,233
)
Less: Comprehensive (income) loss attributable to non-controlling interest

 
(602
)
 

 
357

Less: Dividends to preferred stockholders
(11,106
)
 
(11,106
)
 
(22,213
)
 
(22,213
)
Comprehensive income (loss) attributable to common stockholders
48,061

 
36,117

 
232,113

 
(50,089
)

The accompanying notes are an integral part of these condensed consolidated financial statements.


 
3
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the three months ended March 31, 2019 and June 30, 2019
(Unaudited)
 
 
 
 
 
 
 
 
 
 
Additional
Paid in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
(Distributions
in excess of
earnings)
 
Total
Stockholders’
Equity
 
Series A
Preferred Stock
 
Series B
Preferred Stock
 
Series C
Preferred Stock
 
 
 
$ in thousands except share amounts
 
 
 
Common Stock
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
111,584,996

 
1,115

 
2,383,532

 
220,813

 
(882,087
)
 
2,286,697

Net income

 

 

 

 

 

 

 

 

 

 
138,790

 
138,790

Other comprehensive income

 

 

 

 

 

 

 

 

 
56,369

 

 
56,369

Proceeds from issuance of common stock, net of offering costs

 

 

 

 

 

 
16,672,000

 
167

 
258,386

 

 

 
258,553

Stock awards

 

 

 

 

 

 
10,501

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 
(57,720
)
 
(57,720
)
Preferred stock dividends

 

 

 

 

 

 

 

 

 

 
(11,107
)
 
(11,107
)
Amortization of equity-based compensation

 

 

 

 

 

 

 

 
132

 

 

 
132

Balance at March 31, 2019
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
128,267,497

 
1,282

 
2,642,050

 
277,182

 
(812,124
)
 
2,671,714

Net income

 

 

 

 

 

 

 

 

 

 
18,336

 
18,336

Other comprehensive income

 

 

 

 

 

 

 

 

 
40,831

 

 
40,831

Proceeds from issuance of common stock, net of offering costs

 

 

 

 

 

 
521,136

 
5

 
8,149

 

 

 
8,154

Stock awards

 

 

 

 

 

 
6,895

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 
(57,958
)
 
(57,958
)
Preferred stock dividends

 

 

 

 

 

 

 

 

 

 
(11,106
)
 
(11,106
)
Amortization of equity-based compensation

 

 

 

 

 

 

 

 
130

 

 

 
130

Balance at June 30, 2019
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
128,795,528

 
1,287

 
2,650,329

 
318,013

 
(862,852
)
 
2,670,101

The accompanying notes are an integral part of these condensed consolidated financial statements.








 
4
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)
For the three months ended March 31, 2018 and June 30, 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Attributable to Common Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
Paid in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
(Distributions
in excess of
earnings)
 
Total
Stockholders’
Equity
 
Non-
Controlling
Interest
 
 
 
Series A
Preferred Stock
 
Series B
Preferred Stock
 
Series C
Preferred Stock
 
 
 
 
$ in thousands except share amounts
 
 
 
Common Stock
 
Total
Equity
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2017
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
111,624,159

 
1,116

 
2,384,356

 
261,029

 
(579,334
)
 
2,630,491

 
26,387

 
2,656,878

Net income

 

 

 

 

 

 

 

 

 

 
52,578

 
52,578

 
671

 
53,249

Other comprehensive loss

 

 

 

 

 

 

 

 

 
(127,677
)
 

 
(127,677
)
 
(1,630
)
 
(129,307
)
Stock awards

 

 

 

 

 

 
12,564

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 
(46,887
)
 
(46,887
)
 

 
(46,887
)
Common unit dividends

 

 

 

 

 

 

 

 

 

 

 

 
(599
)
 
(599
)
Preferred stock dividends

 

 

 

 

 

 

 

 

 

 
(11,107
)
 
(11,107
)
 

 
(11,107
)
Amortization of equity-based compensation

 

 

 

 

 

 

 

 
127

 

 

 
127

 
2

 
129

Rebalancing of ownership percentage of non-controlling interest

 

 

 

 

 

 

 

 
143

 

 

 
143

 
(143
)
 

Balance at March 31, 2018
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
111,636,723

 
1,116

 
2,384,626

 
133,352

 
(584,750
)
 
2,497,668

 
24,688

 
2,522,356

Net income

 

 

 

 

 

 

 

 

 

 
91,114

 
91,114

 
1,163

 
92,277

Other comprehensive loss

 

 

 

 

 

 

 

 

 
(43,891
)
 

 
(43,891
)
 
(561
)
 
(44,452
)
Stock awards

 

 

 

 

 

 
6,465

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 
(46,890
)
 
(46,890
)
 

 
(46,890
)
Common unit dividends

 

 

 

 

 

 

 

 

 

 

 

 
(598
)
 
(598
)
Preferred stock dividends

 

 

 

 

 

 

 

 

 

 
(11,106
)
 
(11,106
)
 

 
(11,106
)
Amortization of equity-based compensation

 

 

 

 

 

 

 

 
135

 

 

 
135

 
1

 
136

Rebalancing of ownership percentage of non-controlling interest

 

 

 

 

 

 

 

 
141

 

 

 
141

 
(141
)
 

Balance at June 30, 2018
5,600,000

 
135,356

 
6,200,000

 
149,860

 
11,500,000

 
278,108

 
111,643,188

 
1,116

 
2,384,902

 
89,461

 
(551,632
)
 
2,487,171

 
24,552

 
2,511,723

The accompanying notes are an integral part of these condensed consolidated financial statements.


 
5
 


Table of Contents


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  
Six Months Ended June 30,
$ in thousands
2019
 
2018
Cash Flows from Operating Activities
 
 
 
Net income
157,126

 
145,526

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net
13,800

 
25,657

Realized and unrealized (gain) loss on derivative instruments, net
558,227

 
(217,159
)
Realized and unrealized (gain) loss on credit derivatives, net
5,204

 
7,371

(Gain) loss on investments, net
(570,564
)
 
196,747

(Gain) loss from investments in unconsolidated ventures in excess of distributions received
(1,394
)
 
(1,150
)
Other amortization
(11,505
)
 
(13,052
)
Net loss on extinguishment of debt

 
26

(Gain) loss on foreign currency transactions, net

 
1,099

Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in operating assets
(10,769
)
 
2,267

Increase in operating liabilities
16,877

 
435

Net cash provided by operating activities
157,002

 
147,767

Cash Flows from Investing Activities
 
 
 
Purchase of mortgage-backed and credit risk transfer securities
(5,644,867
)
 
(1,213,558
)
(Contributions to) distributions from investments in unconsolidated ventures, net
(865
)
 
(1,077
)
Change in other assets
7,096

 

Principal payments from mortgage-backed and credit risk transfer securities
760,639

 
1,061,392

Proceeds from sale of mortgage-backed and credit risk transfer securities
1,670,394

 
387,726

Settlement (termination) of futures, currency forwards and interest rate swaps, net
(539,626
)
 
149,852

Net change in due from counterparties and collateral held payable
(9,435
)
 
25,165

Principal payments from commercial loans held-for-investment
7,261

 
64,814

Origination and advances of commercial loans, net of origination fees

 
(1,677
)
Net cash (used in) provided by investing activities
(3,749,403
)
 
472,637

Cash Flows from Financing Activities
 
 
 
Proceeds from issuance of common stock
266,878

 

Proceeds from repurchase agreements
54,344,320

 
72,281,324

Principal repayments of repurchase agreements
(50,872,638
)
 
(72,659,696
)
Extinguishment of exchangeable senior notes

 
(143,433
)
Payments of deferred costs
(87
)
 
(167
)
Payments of dividends and distributions
(126,798
)
 
(117,179
)
Net cash provided by (used in) financing activities
3,611,675

 
(639,151
)
Net change in cash, cash equivalents and restricted cash
19,274

 
(18,747
)
Cash, cash equivalents and restricted cash, beginning of period
135,617

 
89,001

Cash, cash equivalents and restricted cash, end of period
154,891

 
70,254

Supplement Disclosure of Cash Flow Information
 
 
 
Interest paid
236,649

 
158,027

Non-cash Investing and Financing Activities Information
 
 
 
Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities
109,563

 
(161,120
)
Dividends and distributions declared not paid
60,671

 
50,201

Net change in investment related payable (receivable)
(264,449
)
 
(18,871
)
Offering costs not paid