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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 7, 2019
  400888383_ivrwordmarkmainimage08.jpg
Invesco Mortgage Capital Inc.

(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: (404892-0896
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):  
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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 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
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.






Item 2.02
Results of Operations and Financial Condition.

On November 7, 2019, Invesco Mortgage Capital Inc. (the “registrant”) issued a press release announcing its financial results for the quarter ended September 30, 2019 (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
 
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)









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, 2019
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

400888383_ivrwordmarkmainimage08.jpg
Press Release
For immediate release


Brandon Burke, Investor Relations
800-241-5477

Invesco Mortgage Capital Inc. Reports Third Quarter 2019 Financial Results
Book value per common* share of $16.31
Maintained common stock dividend of $0.45 per share
Generated economic return** of 3.4%
Issued $219.3 million in common stock


Atlanta - November 7, 2019 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced financial results for the quarter ended September 30, 2019.

Financial Summary:
Q3 2019 net income attributable to common stockholders of $77.9 million or $0.57 basic income per common share compared to net income attributable to common stockholders of $7.2 million or $0.06 basic income per common share in Q2 2019
Q3 2019 core earnings*** of $63.7 million or core earnings per common share ("EPS") of $0.47 compared to $59.1 million or core EPS of $0.46 in Q2 2019
Q3 2019 book value per common share* of $16.31 compared to $16.21 at Q2 2019
Q3 2019 common stock dividend of $0.45 per share compared to $0.45 in Q2 2019
Economic return** of 3.4% for Q3 2019 and 15.7% for the year to date ended September 30, 2019

“We are pleased to announce core earnings of $0.47 per common share for the third quarter of 2019. Core earnings exceeded our $0.45 dividend for the fourth consecutive quarter as our portfolio benefits from an active management strategy that helps mitigate the impacts of prepayment risk. During the quarter, we issued an additional $219.3 million of common stock and quickly deployed the proceeds into accretive assets that will help support core earnings going forward. Despite volatility in both the funding and interest rate markets during the quarter, our diversified portfolio and dynamic hedging strategy combined to increase book value to $16.31. Our higher book value and stable dividend produced a 3.4% economic return for the quarter, bringing our year-to-date economic return to a robust 15.7%.” said John Anzalone, Chief Executive Officer.




*Book value per 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.
**Economic return for the quarter ended September 30, 2019 is defined as the change in book value per common share from June 30, 2019 to September 30, 2019 of $0.10; plus dividends declared of $0.45 per common share; divided by the June 30, 2019 book value per common share of $16.21. Economic return for the year to date ended September 30, 2019 is defined as the change in book value per common share from December 31, 2018 to September 30, 2019 of $1.04; plus dividends declared of $1.35 per common share; divided by the December 31, 2018 book value per common share of $15.27.
*** 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.


 
1
 

Exhibit 99.1

Key performance indicators for the quarters ended September 30, 2019 and June 30, 2019 are summarized in the table below.
($ in millions, except share amounts)
Q3 ‘19
Q2 ‘19
Variance
Average Balances
(unaudited)
(unaudited)
 
Average earning assets (at amortized cost)

$20,963.1


$20,803.2


$159.9

Average borrowings

$19,326.9


$18,908.9


$418.0

Average equity

$2,598.0


$2,338.0


$260.0

 
 
 
 
U.S. GAAP Financial Measures
 
 
 
Total interest income

$196.3


$202.2


($5.9
)
Total interest expense

$123.3


$129.2


($5.9
)
Net interest income

$73.0


$73.0


$0.0

Total expenses

$10.6


$11.4


($0.8
)
Net income attributable to common stockholders

$77.9


$7.2


$70.7

 
 
 
 
Average earning asset yields
3.75
%
3.89
%
(0.14
%)
Average cost of funds
2.55
%
2.73
%
(0.18
%)
Average net interest rate margin
1.20
%
1.16
%
0.04
%
 
 
 
 
Period-end weighted average asset yields*
3.87
%
4.03
%
(0.16
%)
Period-end weighted average cost of funds
2.47
%
2.77
%
(0.30
%)
Period-end weighted average net interest rate margin
1.40
%
1.26
%
0.14
%
 
 
 
 
Book value per common share**

$16.31


$16.21


$0.10

Earnings per common share (basic)

$0.57


$0.06


$0.51

Earnings per common share (diluted)

$0.57


$0.06


$0.51

Debt-to-equity ratio
6.8
x
7.0
x
(0.2x)

 
 
 
 
Non-GAAP Financial Measures***
 
 
 
Core earnings

$63.7


$59.1


$4.6

Effective interest income

$201.5


$207.5


($6.0
)
Effective interest expense

$117.5


$127.6


($10.1
)
Effective net interest income

$84.0


$79.9


$4.1

 
 
 
 
Effective yield
3.84
%
3.99
%
(0.15
%)
Effective cost of funds
2.43
%
2.70
%
(0.27
%)
Effective interest rate margin
1.41
%
1.29
%
0.12
%
 
 
 
 
Core earnings per common share

$0.47


$0.46


$0.01

Repurchase agreement debt-to-equity ratio
6.9
x
7.4
x
(0.5x)

*Period-end weighted average yields are based on amortized cost as of period end and incorporate future prepayment and loss assumptions.
** Book value per 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.
*** 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 income attributable to common stockholders for the third quarter of 2019 was $77.9 million compared to $7.2 million for the second quarter of 2019. Net income attributable to common stockholders was $70.7 million higher in the third quarter primarily due to a decrease in net losses on derivatives that exceeded a decrease in net gains on investments. Net losses on derivatives totaled $177.2 million compared to $347.2 million in the second quarter and net gains on investments totaled $202.4 million in the third quarter compared to $302.2 million in the second quarter. Net gains on investments and net losses on derivative instruments were driven by a decline in interest rates as the benchmark 10 year U.S. Treasury note fell 34 basis points to 1.66% as of September 30, 2019. The Company also had unrealized gains on available-for-sale investments of $14.5 million in the third quarter and $47.2 million in the second quarter that are recorded in other comprehensive income.
Book value per common share for the third quarter of 2019 was $16.31 compared to $16.21 in the second quarter reflecting higher valuations on prepayment protected Agency RMBS securities and modest interest rate spread tightening in commercial credit during the quarter.
During the third quarter of 2019, the Company generated $63.7 million in core earnings, an increase of $4.6 million or 7.8% over the second quarter of 2019. Higher core earnings were driven by a $4.1 million increase in effective net interest income primarily due to a lower effective cost of funds during the quarter. Effective yield declined by 15 basis points to 3.84%, from 3.99% in the second quarter primarily due to higher Agency RMBS prepayment speeds reflecting increased borrower refinancing activity as interest rates declined. Effective cost of funds was 2.43%, 27 basis points lower than the second quarter, due to lower average repurchase agreement borrowing costs and higher swap interest income.
Total interest income decreased $5.9 million to $196.3 million during the third quarter and average earning asset yield decreased 14 basis points to 3.75%. Premium amortization increased $4.8 million to $18.6 million during the third quarter reflecting the impact of declining interest rates on prepayments of Agency RMBS investments. Average earning assets increased $159.9 million (0.8%) to $21.0 billion in the third quarter due to the investment of net proceeds from the Company's August common stock offering.
The Company increased its average borrowings by $418.0 million (2.2%) in the third quarter of 2019 to $19.3 billion to finance its higher asset base. Total interest expense decreased to $123.3 million compared to $129.2 million during the second quarter of 2019 reflecting an 18 basis point decrease in average cost of funds to 2.55% from 2.73% during the second quarter.
The Company's debt-to-equity ratio was 6.8x as of September 30, 2019 compared to 7.0x as of June 30, 2019. The Company's repurchase agreement debt-to-equity ratio was 6.9x as of September 30, 2019 compared to 7.4x as of June 30, 2019. Leverage decreased during the quarter due to a $241 million increase in shareholders' equity.
Total expenses for the third quarter of 2019 decreased to approximately $10.6 million compared to $11.4 million for the second quarter of 2019 primarily due to a lower management fee base. Total expenses include management fees and general and administrative expenses. The ratio of annualized total expenses to average equity (1) decreased to 1.63% compared to 1.95% for the second quarter of 2019.
As previously announced, the Company declared the following dividends on September 16, 2019: a common stock dividend of $0.45 per share paid on October 28, 2019 to its stockholders of record as of September 27, 2019 and a Series A preferred stock dividend of $0.4844 per share paid on October 25, 2019 to its stockholders of record as of October 1, 2019. The Company declared the following dividends on its Series B and Series C Preferred Stock on November 5, 2019 to its stockholders of record as of December 5, 2019: a Series B Preferred Stock dividend of $0.4844 per share payable on December 27, 2019 and a Series C Preferred Stock dividend of $0.46875 per share payable on December 27, 2019.


(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 Friday, November 8, 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

An audio replay will be available until 5:00 pm ET on November 22, 2019 by calling:

800-388-9920 (North America) or 1-402-998-1162 (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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Interest Income
 
 
 
 
 
 
 
 
 
Mortgage-backed and credit risk transfer securities (1)
194,938

 
200,737

 
160,416

 
581,167

 
456,967

Commercial and other loans
1,353

 
1,484

 
1,672

 
4,419

 
9,945

Total interest income
196,291

 
202,221

 
162,088

 
585,586

 
466,912

Interest Expense
 
 
 
 
 
 
 
 
 
Repurchase agreements
112,851

 
117,978

 
81,763

 
332,704

 
210,737

Secured loans
10,413

 
11,258

 
9,490

 
32,815

 
24,888

Exchangeable senior notes

 

 

 

 
1,621

Total interest expense
123,264

 
129,236

 
91,253

 
365,519

 
237,246

Net interest income
73,027

 
72,985

 
70,835

 
220,067

 
229,666

Other Income (loss)
 
 
 
 
 
 
 
 
 
Gain (loss) on investments, net
202,413

 
302,182

 
(207,910
)
 
772,977

 
(404,657
)
Equity in earnings (losses) of unconsolidated ventures
403

 
702

 
1,084

 
1,797

 
2,778

Gain (loss) on derivative instruments, net
(177,244
)
 
(344,733
)
 
87,672

 
(723,437
)
 
288,208

Realized and unrealized credit derivative income (loss), net
1

 
(2,438
)
 
4,975

 
5,447

 
8,875

Net loss on extinguishment of debt

 

 

 

 
(26
)
Other investment income (loss), net
1,005

 
1,007

 
1,068

 
3,041

 
2,010

Total other income (loss)
26,578

 
(43,280
)
 
(113,111
)
 
59,825

 
(102,812
)
Expenses
 
 
 
 
 
 
 
 
 
Management fee – related party
8,740

 
9,370

 
10,105

 
27,644

 
30,428

General and administrative
1,862

 
1,999

 
1,673

 
6,119

 
4,954

Total expenses
10,602

 
11,369

 
11,778

 
33,763

 
35,382

Net income (loss)
89,003

 
18,336

 
(54,054
)
 
246,129

 
91,472

Net income (loss) attributable to non-controlling interest

 

 
(681
)
 

 
1,153

Net income (loss) attributable to Invesco Mortgage Capital Inc.
89,003

 
18,336

 
(53,373
)
 
246,129

 
90,319

Dividends to preferred stockholders
11,107

 
11,106

 
11,107

 
33,320

 
33,320

Net income (loss) attributable to common stockholders
77,896

 
7,230

 
(64,480
)
 
212,809

 
56,999

Earnings (loss) per share:
 
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
 
 
 
 
 
 
 
 
 
Basic
0.57

 
0.06

 
(0.58
)
 
1.66

 
0.51

Diluted
0.57

 
0.06

 
(0.58
)
 
1.65

 
0.51


(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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Coupon interest
213,546

 
214,501

 
175,696

 
620,489

 
506,180

Net premium amortization
(18,608
)
 
(13,764
)
 
(15,280
)
 
(39,322
)
 
(49,213
)
Mortgage-backed and credit risk transfer securities interest income
194,938

 
200,737

 
160,416

 
581,167

 
456,967



 
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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Net income (loss)
89,003

 
18,336

 
(54,054
)
 
246,129

 
91,472

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
14,482

 
47,188

 
(40,554
)
 
114,019

 
(220,800
)
Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
(954
)
 
(121
)
 
134,280

 
9,072

 
153,406

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense
(5,981
)
 
(5,916
)
 
(6,422
)
 
(17,748
)
 
(19,859
)
Currency translation adjustments on investment in unconsolidated venture
290

 
(320
)
 
(1,126
)
 
(306
)
 
(328
)
Total other comprehensive income (loss)
7,837

 
40,831

 
86,178

 
105,037

 
(87,581
)
Comprehensive income
96,840

 
59,167

 
32,124

 
351,166

 
3,891

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

 

 
(405
)
 

 
(48
)
Less: Dividends to preferred stockholders
(11,107
)
 
(11,106
)
 
(11,107
)
 
(33,320
)
 
(33,320
)
Comprehensive income (loss) attributable to common stockholders
85,733

 
48,061

 
20,612

 
317,846

 
(29,477
)


 
6
 

Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
  
As of
 $ in thousands except share amounts
September 30, 2019
 
December 31, 2018
ASSETS
 
Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $21,866,617 and $17,082,825, respectively)(1)
23,599,499

 
17,396,642

Cash and cash equivalents
125,888

 
135,617

Restricted cash
80,086

 

Due from counterparties
10,284

 
13,500

Investment related receivable
72,959

 
66,598

Derivative assets, at fair value
4,127

 
15,089

Other assets
168,480

 
186,059

Total assets
24,061,323

 
17,813,505

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
18,072,032

 
13,602,484

Secured loans
1,650,000

 
1,650,000

Derivative liabilities, at fair value
46,381

 
23,390

Dividends and distributions payable
66,974

 
49,578

Investment related payable
1,271,718

 
132,096

Accrued interest payable
29,831

 
37,620

Collateral held payable
1,096

 
18,083

Accounts payable and accrued expenses
2,477

 
1,694

Due to affiliate
9,782

 
11,863

Total liabilities
21,150,291

 
15,526,808

Commitments and contingencies (See Note 14) (2):

 

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; 142,802,293 and 111,584,996 shares issued and outstanding, respectively
1,427

 
1,115

Additional paid in capital
2,869,650

 
2,383,532

Accumulated other comprehensive income
325,850

 
220,813

Retained earnings (distributions in excess of earnings)
(849,219
)
 
(882,087
)
Total stockholders' equity
2,911,032

 
2,286,697

Total liabilities and stockholders' equity
24,061,323

 
17,813,505


(1)
Includes approximately $1.3 billion of to-be-announced ("TBA") Agency CMBS securities as of September 30, 2019 that cannot be pledged as collateral until settled. The Company's obligation to purchase these securities is recorded within investment related payable on the condensed consolidated balance sheet.
(2)
See Note 14 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, 2019.

 
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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Net income (loss) attributable to common stockholders
77,896

 
7,230

 
(64,480
)
 
212,809

 
56,999

Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on investments, net
(202,413
)
 
(302,182
)
 
207,910

 
(772,977
)
 
404,657

Realized (gain) loss on derivative instruments, net (1)
173,607

 
307,239

 
(99,641
)
 
713,233

 
(249,493
)
Unrealized (gain) loss on derivative instruments, net (1)
15,352

 
45,019

 
9,206

 
33,953

 
(58,101
)
Realized and unrealized (gain) loss on GSE CRT embedded derivatives, net (2)
5,195

 
7,738

 
663

 
10,399

 
8,034

Loss on foreign currency transactions, net (3)
14

 

 
(215
)
 
14

 
937

Amortization of net deferred (gain) loss on de-designated interest rate swaps (4) 
(5,981
)
 
(5,916
)
 
(6,422
)
 
(17,748
)
 
(19,859
)
Net loss on extinguishment of debt

 

 

 

 
26

Subtotal
(14,226
)
 
51,898

 
111,501

 
(33,126
)
 
86,201

Cumulative adjustments attributable to non-controlling interest

 

 
(1,405
)
 

 
(1,087
)
Core earnings attributable to common stockholders
63,670

 
59,128

 
45,616

 
179,683

 
142,113

Basic income (loss) per common share
0.57

 
0.06

 
(0.58
)
 
1.66

 
0.51

Core earnings per share attributable to common stockholders (5)
0.47

 
0.46

 
0.41

 
1.40

 
1.27

(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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Realized gain (loss) on derivative instruments, net
(173,607
)
 
(307,239
)
 
99,641

 
(713,233
)
 
249,493

Unrealized gain (loss) on derivative instruments, net
(15,352
)
 
(45,019
)
 
(9,206
)
 
(33,953
)
 
58,101

Contractual net interest income (expense) on interest rate swaps
11,715

 
7,525

 
(2,763
)
 
23,749

 
(19,386
)
Gain (loss) on derivative instruments, net
(177,244
)
 
(344,733
)
 
87,672

 
(723,437
)
 
288,208

(2)
U.S. GAAP realized and unrealized credit derivative income (loss), net on the condensed consolidated statements of operations includes the following components:
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Realized and unrealized gain (loss) on GSE CRT embedded derivatives, net
(5,195
)
 
(7,738
)
 
(663
)
 
(10,399
)
 
(8,034
)
GSE CRT embedded derivative coupon interest
5,196

 
5,300

 
5,638

 
15,846

 
16,909

Realized and unrealized credit derivative income (loss), net
1

 
(2,438
)
 
4,975

 
5,447

 
8,875





 
9
 

Exhibit 99.1

(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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Dividend income
1,019

 
1,007

 
853

 
3,055

 
2,947

Loss on foreign currency transactions, net
(14
)
 

 
215

 
(14
)
 
(937
)
Other investment income (loss), net
1,005

 
1,007

 
1,068

 
3,041

 
2,010

(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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Interest expense on repurchase agreement borrowings
118,832

 
123,894

 
88,185

 
350,452

 
230,596

Amortization of net deferred (gain) loss on de-designated interest rate swaps
(5,981
)
 
(5,916
)
 
(6,422
)
 
(17,748
)
 
(19,859
)
Repurchase agreements interest expense
112,851

 
117,978

 
81,763

 
332,704

 
210,737


(5) Core earnings per share attributable to common stockholders is equal to core earnings divided by the basic weighted average number of common shares outstanding.
The components of core income for the three and nine months ended September 30, 2019 are:
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Effective net interest income(1)
83,957

 
79,894

 
67,288

 
241,914

 
207,330

Dividend income
1,019

 
1,007

 
853

 
3,055

 
2,947

Equity in earnings (losses) of unconsolidated ventures
403

 
702

 
1,084

 
1,797

 
2,778

Total expenses
(10,602
)
 
(11,369
)
 
(11,778
)
 
(33,763
)
 
(35,382
)
Total core earnings
74,777

 
70,234

 
57,447

 
213,003

 
177,673

Dividends to preferred stockholders
(11,107
)
 
(11,106
)
 
(11,107
)
 
(33,320
)
 
(33,320
)
Core earnings attributable to non-controlling interest

 

 
(724
)
 

 
(2,240
)
Core earnings attributable to common stockholders
63,670

 
59,128

 
45,616

 
179,683

 
142,113

(1)
See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.




 
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 income (expense) on its interest rate swaps that is recorded as gain (loss) on derivative instruments, net and the amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense. The Company views its interest rate swaps as an economic hedge against increases in future market interest rates on its 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 income (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, 2019
 
June 30, 2019
 
September 30, 2018
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
196,291

 
3.75
%
 
202,221

 
3.89
%
 
162,088

 
3.53
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,196

 
0.09
%
 
5,300

 
0.10
%
 
5,638

 
0.12
%
Effective interest income
201,487

 
3.84
%
 
207,521

 
3.99
%
 
167,726

 
3.65
%
 
Nine Months Ended September 30,
 
2019
 
2018
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
585,586

 
3.84
%
 
466,912

 
3.45
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
15,846

 
0.11
%
 
16,909

 
0.13
%
Effective interest income
601,432

 
3.95
%
 
483,821

 
3.58
%
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, 2019
 
June 30, 2019
 
September 30, 2018
$ 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
123,264

 
2.55
 %
 
129,236

 
2.73
 %
 
91,253

 
2.29
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
5,981

 
0.12
 %
 
5,916

 
0.13
 %
 
6,422

 
0.16
%
Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net
(11,715
)
 
(0.24
)%
 
(7,525
)
 
(0.16
)%
 
2,763

 
0.07
%
Effective interest expense
117,530

 
2.43
 %
 
127,627

 
2.70
 %
 
100,438

 
2.52
%
 
Nine Months Ended September 30,
 
2019
 
2018
$ in thousands
Reconciliation
 
Cost of Funds / Effective Cost of Funds
 
Reconciliation
 
Cost of Funds / Effective Cost of Funds
Total interest expense
365,519

 
2.64
 %
 
237,246

 
2.02
%
Add (Less): Amortization of net deferred gain (loss) on de-designated interest rate swaps
17,748

 
0.13
 %
 
19,859

 
0.17
%
Add (Less): Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net
(23,749
)
 
(0.17
)%
 
19,386

 
0.17
%
Effective interest expense
359,518

 
2.60
 %
 
276,491

 
2.36
%


 
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, 2019
 
June 30, 2019
 
September 30, 2018
$ 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
73,027

 
1.20
 %
 
72,985

 
1.16
 %
 
70,835

 
1.24
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(5,981
)
 
(0.12
)%
 
(5,916
)
 
(0.13
)%
 
(6,422
)
 
(0.16
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
5,196

 
0.09
 %
 
5,300

 
0.10
 %
 
5,638

 
0.12
 %
Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net
11,715

 
0.24
 %
 
7,525

 
0.16
 %
 
(2,763
)
 
(0.07
)%
Effective net interest income
83,957

 
1.41
 %
 
79,894

 
1.29
 %
 
67,288

 
1.13
 %

 
Nine Months Ended September 30,
 
2019
 
2018
$ in thousands
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
 
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income
220,067

 
1.20
 %
 
229,666

 
1.43
 %
Add (Less): Amortization of net deferred (gain) loss on de-designated interest rate swaps
(17,748
)
 
(0.13
)%
 
(19,859
)
 
(0.17
)%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
15,846

 
0.11
 %
 
16,909

 
0.13
 %
Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net
23,749

 
0.17
 %
 
(19,386
)
 
(0.17
)%
Effective net interest income
241,914

 
1.35
 %
 
207,330

 
1.22
 %


 
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, 2019 and June 30, 2019. 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 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, 2019
$ in thousands
Agency RMBS
Agency CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Mortgage-backed and credit risk transfer securities
12,864,217

4,936,184

3,851,552

1,947,546

23,599,499

Cash and cash equivalents (3)
56,122

17,226

37,536

15,004

125,888

Restricted cash (4)
57,878

22,208



80,086

Derivative assets, at fair value (4)
2,557

981

589


4,127

Other assets
76,417

13,452

111,501

50,353

251,723

Total assets
13,057,191

4,990,051

4,001,178

2,012,903

24,061,323

 
 
 
 
 
 
Repurchase agreements
11,124,901

3,306,244

2,018,542

1,622,345

18,072,032

Secured loans (5)
547,149


1,102,851


1,650,000

Derivative liabilities, at fair value (4)
33,519

12,862



46,381

Other liabilities
56,160

1,272,761

40,999

11,958

1,381,878

Total liabilities
11,761,729

4,591,867

3,162,392

1,634,303

21,150,291

 
 
 
 
 
 
Total equity (allocated)
1,295,462

398,184

838,786

378,600

2,911,032

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


(47,493
)

(47,493
)
Collateral pledged against secured loans
(633,350
)

(1,276,599
)

(1,909,949
)
Secured loans
547,149


1,102,851


1,650,000

Equity related to repurchase agreement debt
1,209,261

398,184

617,545

378,600

2,603,590

Debt-to-equity ratio (7)
9.0

8.3

3.7

4.3

6.8

Repurchase agreement debt-to-equity ratio (8)
9.2

8.3

3.3

4.3

6.9

(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)
Restricted cash, derivative assets and derivative 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, 2019
$ in thousands
Agency RMBS
Agency CMBS
Commercial Credit (1)
Residential Credit (2)
Total
Mortgage-backed and credit risk transfer securities
12,935,301

2,926,243

3,651,586

2,022,917

21,536,047

Cash and cash equivalents (3)
44,940

9,724

31,996

12,960

99,620

Restricted cash(4)
45,074

10,197



55,271

Derivative assets, at fair value (4)
8,207

1,857

3


10,067

Other assets
91,609

77,742

113,682

54,040

337,073

Total assets
13,125,131

3,025,763

3,797,267

2,089,917

22,038,078

 
 
 
 
 
 
Repurchase agreements
11,234,043

2,299,766

1,849,544

1,691,712

17,075,065

Secured loans (5)
580,915


1,069,085


1,650,000

Derivative liabilities, at fair value (4)
29,904

6,765

300


36,969

Other liabilities
86,687

464,263

42,437

12,556

605,943

Total liabilities
11,931,549

2,770,794

2,961,366

1,704,268

19,367,977

 
 
 
 
 
 
Total equity (allocated)
1,193,582

254,969

835,901

385,649

2,670,101

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


(49,996
)

(49,996
)
Collateral pledged against secured loans
(688,520
)

(1,267,117
)

(1,955,637
)
Secured loans
580,915


1,069,085


1,650,000

Equity related to repurchase agreement debt
1,085,977

254,969

587,873

385,649

2,314,468

Debt-to-equity ratio (7)
9.9

9.0

3.5

4.4

7.0

Repurchase agreement debt-to-equity ratio (8)
10.3

9.0

3.1

4.4

7.4

(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)
Restricted cash, derivative assets and derivative 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 Earning 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,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Average Earning Asset Balances (1):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
312,603

 
342,822

 
1,613,967

 
342,003

 
2,376,050

30 year fixed-rate, at amortized cost
11,837,640

 
12,569,625

 
9,362,170

 
12,062,635

 
8,338,593

Hybrid ARM, at amortized cost
66,671

 
152,657

 
1,484,791

 
153,731

 
1,731,512

Agency - CMO, at amortized cost
420,889

 
377,794

 
242,133

 
364,005

 
256,770

Agency CMBS, at amortized cost
2,796,732

 
1,940,906

 
516,992

 
1,961,730

 
190,951

Non-Agency CMBS, at amortized cost
3,607,381

 
3,470,708

 
3,236,226

 
3,480,642

 
3,202,556

Non-Agency RMBS, at amortized cost
946,446

 
1,020,856

 
1,055,671

 
1,016,835

 
1,056,962

GSE CRT, at amortized cost
905,062

 
852,083

 
762,235

 
855,501

 
769,546

Loan participation interest
45,465

 
51,377

 
29,875

 
50,501

 
10,068

Commercial loans, at amortized cost
24,233

 
24,365

 
55,607

 
25,313

 
137,028

Average earning assets
20,963,122

 
20,803,193

 
18,359,667

 
20,312,896

 
18,070,036

Average Earning Asset Yields (2):
 
 
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
 
 
15 year fixed-rate
3.32
%
 
3.21
%
 
2.59
%
 
3.35
%
 
2.15
%
30 year fixed-rate
3.19
%
 
3.43
%
 
2.96
%
 
3.34
%
 
2.96
%
Hybrid ARM
3.22
%
 
2.88
%
 
2.56
%
 
3.26
%
 
2.36
%
Agency - CMO
3.40
%
 
3.24
%
 
3.20
%
 
3.38
%
 
2.90
%
Agency CMBS
3.44
%
 
3.49
%
 
2.85
%
 
3.46
%
 
3.34
%
Non-Agency CMBS
5.09
%
 
5.07
%
 
4.88
%
 
5.05
%
 
4.89
%
Non-Agency RMBS
6.54
%
 
6.53
%
 
7.17
%
 
6.60
%
 
7.12
%
GSE CRT (3)
3.33
%
 
3.56
%
 
3.56
%
 
3.51
%
 
3.31
%
Commercial loans
10.89
%
 
11.13
%
 
10.05
%
 
11.04
%
 
9.45
%
Loan participation interest
6.18
%
 
6.12
%
 
5.87
%
 
6.14
%
 
5.87
%
Average earning asset yields
3.75
%
 
3.89
%
 
3.53
%
 
3.84
%
 
3.45
%
(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 Cost of Funds
The table below presents information related to the Company's average borrowings and average cost of funds.
 
Three Months Ended
 
Nine Months Ended
$ in thousands
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Average Borrowings (1):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
11,808,241

 
12,516,268

 
11,326,323

 
11,996,851

 
11,299,625

Agency CMBS
2,794,691

 
1,881,685

 
472,011

 
1,923,397

 
173,727

Non-Agency CMBS (2)
3,047,334

 
2,819,109

 
2,575,504

 
2,844,764

 
2,558,317

Non-Agency RMBS
865,961

 
901,451

 
895,504

 
884,580

 
882,784

GSE CRT
776,555

 
751,882

 
681,079

 
748,856

 
674,560

Exchangeable senior notes

 

 

 

 
38,300

        Loan participation interest
34,099

 
38,532

 
22,406

 
37,876

 
7,551

Total average borrowings
19,326,881

 
18,908,927

 
15,972,827

 
18,436,324

 
15,634,864

Maximum borrowings during the period (3)
19,898,863

 
19,365,413

 
16,078,387

 
19,898,863

 
16,078,387

Average Cost of Funds (4):
 
 
 
 
 
 
 
 
 
Agency RMBS (2)
2.54
 %
 
2.73
 %
 
2.24
 %
 
2.62
 %
 
1.96
 %
Agency CMBS
2.54
 %
 
2.68
 %
 
2.26
 %
 
2.59
 %
 
2.22
 %
Non-Agency CMBS (2)
3.00
 %
 
3.19
 %
 
2.88
 %
 
3.14
 %
 
2.61
 %
Non-Agency RMBS
3.26
 %
 
3.46
 %
 
3.40
 %
 
3.42
 %
 
3.17
 %
GSE CRT
3.22
 %
 
3.47
 %
 
3.26
 %
 
3.39
 %
 
3.10
 %
Exchangeable senior notes
 %
 
 %
 
 %
 
 %
 
5.58
 %
        Loan participation interest
4.03
 %
 
4.11
 %
 
3.83
 %
 
4.10
 %
 
3.83
 %
Cost of funds
2.55
 %
 
2.73
 %
 
2.29
 %
 
2.64
 %
 
2.02
 %
Interest rate swaps average fixed pay rate (5) 
1.92
 %
 
2.28
 %
 
2.35
 %
 
2.21
 %
 
2.26
 %
Interest rate swaps average floating receive rate (6) 
(2.28
)%
 
(2.51
)%
 
(2.25
)%
 
(2.45
)%
 
(1.98
)%
Effective cost of funds (non-GAAP measure) (7)
2.43
 %
 
2.70
 %
 
2.52
 %
 
2.60
 %
 
2.36
 %
 
 
 
 
 
 
 
 
 
 
Debt-to-equity ratio (as of period end)
6.8
x
 
7.0
x
 
6.4
x
 
6.8
x
 
6.4
x
(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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