Invesco Mortgage Capital Inc. - FORM 8-K - EX-99.1 - EXHIBIT - February 19, 2014

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8-K - 8-K - Invesco Mortgage Capital Inc.ivrq42013-8kmain.htm
Exhibit 99.1



    
Press Release
For immediate release
 
Invesco Mortgage Capital Inc. Reports
Fourth Quarter 2013 Financial Results

Contact: Bill Hensel, 404-479-2886


Net loss of ($84.3) million or ($0.63) per common share
Core earnings of $63.6 million or $0.48 per common share *
Book value of $17.97 per common share

Atlanta – February 19, 2014 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the “Company”) today announced results for the quarter ended December 31, 2013.

“In the fourth quarter we made significant progress on new initiatives aimed at reducing book value volatility and stabilizing core earnings," said Richard King, President and CEO. "Despite the increase in interest rates, book value increased 1.9% and core earnings were $0.48 per share."

($ in millions, except per share amounts)
Q4 ‘13
Q3 ‘13
 
(unaudited)
(unaudited)
Average earning assets (at amortized costs)

$20,063.5


$20,452.7

Average borrowed funds
17,867.2

18,150.6

Average equity

$2,403.4


$2,426.3

 
 
 
Interest income

$174.9


$171.3

Interest expense
95.6

89.6

Net interest income
79.2

81.7

Loss on sale of investments
(142.5
)
(69.3
)
Other loss
(4.0
)
(5.2
)
Operating expenses
14.2

13.2

Net loss
(81.6
)
(6.0
)
Preferred dividend
2.7

2.7

Net loss after preferred dividend

($84.3
)

($8.7
)
 
 
 
Average portfolio yield
3.49
%
3.35
%
Average cost of funds
2.14
%
1.97
%
Debt to equity ratio
7.3x

6.9x

Return on average equity
(14.03
%)
(1.44
%)
Book value per common share (diluted)

$17.97


$17.64

Loss per common share (basic)

($0.63
)

($0.06
)
Core earnings per common share *

$0.48


$0.50

Dividend per common share

$0.50


$0.50

Dividend per preferred share

$0.4844


$0.4844


* Core earnings is a non-Generally Accepted Accounting Principles ("GAAP") financial measure. See the section entitled "Non-GAAP Financial Information" below for important disclosures and a reconciliation to the most comparable U.S. GAAP measure to core earnings.



Exhibit 99.1

Financial Summary

During the fourth quarter, the Company generated $0.48 in core earnings, and the book value improved 1.9% to $17.97. This was accomplished while continuing to reposition the investment portfolio to be less interest rate sensitive. The Company repurchased 10.7 million shares of common stock with an average price of $14.97 which added approximately $0.23 to the book value. In addition, the Company sold approximately $2.3 billion in 30 year fixed-rate Agency mortgage-backed securities ("MBS") and allocated the capital to Agency hybrid adjustable rate mortgages ("ARM"), residential loan securitizations, risk-sharing programs offered by government-sponsored enterprises ("GSE") and commercial real estate loans.

The Company's net loss for the fourth quarter was ($84.3) million or ($0.63) per common share and was primarily driven by the sale of Agency MBS that resulted in a loss on sale of ($142.5) million or ($1.08) per common share compared to a loss on sale of ($69.3) million or ($0.51) per common share in the third quarter. In addition, the Company sold interest rate swaptions realizing a loss of ($9.9) million or ($0.08) per common share in the fourth quarter compared to a gain of $39.1 million or $0.29 per common share in the third quarter. The Company had unrealized gains on its hedging portfolio that flow through earnings of $7.9 million or $0.06 per common share for the quarter ended December 31, 2013 compared to unrealized losses of ($46.0) million or ($0.34) per common share for the quarter ended September 30, 2013.

As of December 31, 2013, the Company’s MBS portfolio was $17.3 billion, a decrease of $1.5 billion from September 30, 2013. In addition, the Company increased its portfolio of loans held for investment to $1.9 billion, an increase of $325.1 million from September 30, 2013. For the quarter ended December 31, 2013, average earning assets were $20.1 billion, representing a decrease of $389.2 million from September 30, 2013. The portfolio generated interest income of $174.9 million during the three months ended December 31, 2013, which reflects an increase of $3.6 million from the three months ended September 30, 2013. The increase in interest income was a result of changing the portfolio composition during the quarter which included selling lower yielding fixed rate assets.

For the quarter ended December 31, 2013, the Company had average borrowings of approximately $17.9 billion and interest expense, including cost of hedging, of $95.6 million, compared to $18.2 billion and $89.6 million, respectively, for the third quarter of 2013. The Company's average cost of funds was 2.14% and 1.97% for the fourth quarter and third quarter, respectively. The increase in cost of funds was due to higher hedging costs related to forward starting swaps entered into in prior periods that the Company began paying on in the fourth quarter.

Operating expenses for the fourth quarter of 2013 totaled $14.2 million, compared to $13.2 million for the third quarter. The ratio of operating expenses to average equity for the fourth quarter was 2.36%, which was an increase of 18 basis points from the third quarter. The increase was primarily due to one-time costs and lower equity after share repurchases.

The Company declared a common stock dividend of $0.50 per share for the fourth quarter of 2013. The dividend was paid on January 28, 2014.

The Company declared a preferred stock dividend of $0.4844 per share for the fourth quarter of 2013. The dividend was paid on January 27, 2014.


About Invesco Mortgage Capital Inc.

Invesco Mortgage Capital Inc. is a real estate investment trust that focuses on financing and managing residential and commercial mortgage-backed securities and mortgage loans. Invesco Mortgage Capital Inc. is externally managed and advised by Invesco Advisers, Inc., a subsidiary of Invesco Ltd. (NYSE: IVZ), a leading independent global investment management firm.


Exhibit 99.1


Earnings Call

Members of the investment community and the general public are invited to listen to the Company’s earnings conference call on Thursday, February 20, 2014, at 8:30 a.m. ET, by calling one of the following numbers:

US/Canada Toll Free:    888-942-8507
International:        415-228-4839
Passcode:         Invesco

An audio replay will be available until 5:00 pm ET on March 6, 2014 by calling:

866-446-5469 (North America) or 203-369-1145 (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, 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 statements with respect to our beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance. In addition, words such as “will,” “anticipates,” “expects” and “plans,” 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 investors 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.

Exhibit 99.1




INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended 
December 31,
 
Years Ended 
December 31,
$ in thousands, except per share data
2013
 
2012
 
2013
 
2012
Interest Income
 
 
 
 
 
 
 
Mortgage-backed securities
160,168

 
145,389

 
646,787

 
566,830

Residential loans
13,679

 
—

 
34,122

 
—

Commercial loans
1,019

 
—

 
1,451

 
—

Total interest income
174,866

 
145,389

 
682,360

 
566,830

Interest Expense
 
 
 
 
 
 
 
Repurchase agreements
79,061

 
65,093

 
287,547

 
237,405

Exchangeable senior notes
5,620

 
—

 
18,023

 
—

Asset-backed securities
10,960

 
—

 
26,682

 
—

Total interest expense
95,641

 
65,093

 
332,252

 
237,405

Net interest income
79,225

 
80,296

 
350,108

 
329,425

Provision for loan losses
134

 
—

 
884

 
—

Net interest income after provision for loan losses
79,091

 
80,296

 
349,224

 
329,425

Other Income (loss)
 
 
 
 
 
 
 
Gain (loss) on sale of investments, net
(142,530
)
 
23,236

 
(199,449
)
 
48,215

Equity in earnings and fair value change in unconsolidated ventures
176

 
937

 
5,345

 
7,169

Realized and unrealized gain (loss) on interest rate derivative instruments
(4,421
)
 
(1,382
)
 
40,003

 
(4,232
)
Realized and unrealized credit default swap income
299

 
420

 
1,127

 
3,115

Total other income (loss)
(146,476
)
 
23,211

 
(152,974
)
 
54,267

Expenses
 
 
 
 
 
 
 
Management fee – related party
10,533

 
9,285

 
42,639

 
35,658

General and administrative
3,660

 
892

 
10,505

 
4,026

Total expenses
14,193

 
10,177

 
53,144

 
39,684

Net income (loss)
(81,578
)
 
93,330

 
143,106

 
344,008

Net income (loss) attributable to non-controlling interest
(906
)
 
1,098

 
1,486

 
4,123

Net income (loss) attributable to Invesco Mortgage Capital Inc.
(80,672
)
 
92,232

 
141,620

 
339,885

Dividends to preferred shareholders
2,712

 
2,713

 
10,851

 
5,395

Net income (loss) attributable to common shareholders
(83,384
)
 
89,519

 
130,769

 
334,490

Earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss) attributable to common shareholders
 
 
 
 
 
 
 
Basic
(0.63
)
 
0.77

 
0.99

 
2.89

Diluted
(0.63
)
 
0.77

 
0.99

 
2.89









Exhibit 99.1


INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

$ in thousands, except share and per share amounts
As of
ASSETS
December 31,
2013
 
December 31,
2012
Mortgage-backed securities, at fair value
17,348,657

 
18,470,563

Residential loans, held-for-investment, net of loan loss reserve
1,810,262

 
—

Commercial loans, held-for-investment, net of loan loss reserve
64,599

 
—

Cash and cash equivalents
210,612

 
286,474

Due from counterparties
1,500

 
—

Investment related receivable
515,404

 
41,429

Investments in unconsolidated ventures, at fair value
44,403

 
35,301

Accrued interest receivable
68,246

 
62,977

Derivative assets, at fair value
262,059

 
6,469

Deferred securitization and financing costs
13,894

 
—

Other investments
10,000

 
10,000

Other assets
1,343

 
1,547

Total assets(1)
20,350,979

 
18,914,760

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
15,451,675

 
15,720,460

Asset-backed securities
1,643,741

 
—

Exchangeable senior notes
400,000

 
—

Derivative liability, at fair value
263,204

 
436,440

Dividends and distributions payable
66,087

 
79,165

Investment related payable
28,842

 
63,715

Accrued interest payable
26,492

 
15,275

Collateral held payable
52,698

 
—

Accounts payable and accrued expenses
4,304

 
877

Due to affiliate
10,701

 
9,308

Total liabilities(1)
17,947,744

 
16,325,240

Equity:
 
 
 
Preferred Stock, par value $0.01 per share; 50,000,000 shares authorized, 7.75% series A cumulative redeemable, 5,600,000 shares issued and outstanding ($140,000 aggregate liquidation preference) at December 31, 2013 and 2012, respectively
135,356

 
135,362

Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 124,510,246 and 116,195,500 shares issued and outstanding, at December 31, 2013 and 2012, respectively
1,245

 
1,162

Additional paid in capital
2,552,464

 
2,316,290

Accumulated other comprehensive income (loss)
(156,993
)
 
86,436

Retained earnings (distributions in excess of earnings)
(155,957
)
 
18,848

Total shareholders’ equity
2,376,115

 
2,558,098

Non-controlling interest
27,120

 
31,422

Total equity
2,403,235

 
2,589,520

Total liabilities and equity
20,350,979

 
18,914,760

(1)
The Company's consolidated balance sheets include assets of consolidated variable interest entities (“VIEs”) that can only be used to settle obligations and liabilities of the VIEs for which creditors do not have recourse to the primary beneficiary (IAS Asset I LLC, an indirect subsidiary of the Company). As of December 31, 2013 and December 31, 2012, total assets of the consolidated VIEs were $1,819,295 and $0, respectively, and total liabilities of the consolidated VIEs were $1,648,400 and $0, respectively.



Exhibit 99.1


Non-GAAP Financial Information

In addition to the results presented in accordance with U.S. GAAP, this release contains the non-GAAP financial measure of “core earnings.” The Company’s management uses core earnings in its internal analysis of results and believes this information is useful to investors for the reasons explained below.

The Company calculates core earnings as U.S. GAAP net income attributable to common shareholders excluding gain (loss) on sale of investments, net and realized and unrealized gain (loss) on interest rate derivative instruments. The Company records changes in the valuation of its investment portfolio and certain interest rate swaps in other comprehensive income. In addition, the Company uses swaptions and invests in U.S. Treasury futures that do not qualify under U.S. GAAP for inclusion in other comprehensive income and, as such, the changes in valuation are recorded in the period in which they occur. For internal portfolio analysis, the Company’s management deducts these gains and losses from U.S. GAAP net income to provide a consistent view of investment portfolio performance across reporting periods.

The Company believes the presentation of core earnings allows investors to evaluate and compare the performance of the Company to that of its peers because core earnings measures investment portfolio performance over multiple reporting periods by removing realized and unrealized gains and losses. As such, the Company believes that the disclosure of core earnings is useful and meaningful to its investors.

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 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. In addition, the Company's methodology for calculating core earnings may differ from those employed by other companies for a similarly described measure and, therefore, may not be comparable.

The table below provides a reconciliation of U.S. GAAP net income attributable to common shareholders to core earnings for the following periods:

Reconciliation of Net Income Attributable to Common Shareholders to Core Earnings (Unaudited)

 
Three Months Ended 
December 31,
 
Years Ended 
December 31,
$ in thousands, except per share data
2013
 
2012
 
2013
 
2012
Net income (loss) attributable to common shareholders
(83,384
)
 
89,519

 
130,769

 
334,490

Adjustments
 
 
 
 
 
 
 
(Gain) loss on sale of investments, net
142,530

 
(23,236
)
 
199,449

 
(48,215
)
Realized (gain) loss on interest rate derivative instruments
12,308

 
—

 
(53,926
)
 
—

Unrealized (gain) loss on interest rate derivative instruments
(7,887
)
 
1,382

 
13,923

 
4,232

Total adjustments
146,951

 
(21,854
)
 
159,446

 
(43,983
)
Core earnings
63,567

 
67,665

 
290,215

 
290,507

Basic earnings (loss) per common share
(0.63
)
 
0.77

 
0.99

 
2.89

Core earnings per share attributable to common shareholders
0.48

 
0.59

 
2.19

 
2.52



Exhibit 99.1


Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company’s MBS portfolio as of December 31, 2013:
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
Principal
Balance
 
Unamortized
Premium
(Discount)
 
Amortized
Cost
 
Unrealized
Gain/
(Loss), net
 
Fair
Value
 
Net Weighted
Average 
Coupon (1)
 
Period-
end
Weighted
Average
Yield (2)
 
Quarterly
Weighted
Average
Yield (3)
Agency RMBS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 year fixed-rate
1,637,988

 
83,799

 
1,721,787

 
22,494

 
1,744,281

 
4.02
%
 
2.54
%
 
2.61
%
30 year fixed-rate
6,494,723

 
435,680

 
6,930,403

 
(228,250
)
 
6,702,153

 
4.11
%
 
2.96
%
 
3.13
%
ARM
251,693

 
992

 
252,685

 
597

 
253,282

 
2.80
%
 
2.62
%
 
2.41
%
Hybrid ARM
1,764,472

 
9,470

 
1,773,942

 
(3,384
)
 
1,770,558

 
2.69
%
 
2.46
%
 
2.06
%
Total Agency pass-through
10,148,876

 
529,941

 
10,678,817

 
(208,543
)
 
10,470,274

 
3.82
%
 
2.80
%
 
2.90
%
Agency-CMO(4)
1,532,474

 
(1,051,777
)
 
480,697

 
(6,183
)
 
474,514

 
2.76
%
 
3.82
%
 
3.47
%
Non-Agency RMBS(5)
4,361,730

 
(618,634
)
 
3,743,096

 
32,213

 
3,775,309

 
3.74
%
 
3.75
%
 
4.60
%
CMBS(6)
4,630,363

 
(2,032,945
)
 
2,597,418

 
31,142

 
2,628,560

 
3.38
%
 
4.62
%
 
4.51
%
Total
20,673,443

 
(3,173,415
)
 
17,500,028

 
(151,371
)
 
17,348,657

 
3.63
%
 
3.30
%
 
3.51
%
____________________
(1)
Net weighted average coupon as of December 31, 2013 (“WAC”) is presented net of servicing and other fees.
(2)
Weighted average yield based on amortized cost as of December 31, 2013 incorporates future prepayment and loss assumptions.
(3)
Weighted average yield based on average amortized cost for the three months ended December 31, 2013 incorporates future prepayment and loss assumptions.
(4)
Included in the Agency-CMO are interest only securities which represent 25.0% of the balance based on fair value.
(5)
Non-Agency RMBS held by the Company is 58.4% variable rate, 32.4% fixed rate, and 9.2% floating rate based on fair value.
(6)
Included in the CMBS are interest-only securities and commercial real estate mezzanine loan pass-through certificates which represent 7.5% and 1.0% of the balance based on fair value, respectively.


Constant Prepayment Rates (CPR)
The CPR of our portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income. Our Agency and non-Agency RMBS had a weighted average CPR of 9.7 and 13.1 for the three months ended December 31, 2013 and September 30, 2013, respectively. The table below shows the three month CPR for our RMBS compared to bonds with similar characteristics (“Cohorts”):
 
 
December 31, 2013
 
September 30, 2013
 
Company
 
Cohort
 
Company
 
Cohort
15 year Agency RMBS
12.3

 
14.1

 
15.9

 
23.9

30 year Agency RMBS
8.1

 
9.7

 
10.1

 
14.2

Agency Hybrid ARM RMBS
6.4

 
NA

 
18.1

 
NA

Non-Agency RMBS
12.4

 
NA

 
17.3

 
NA

Overall
9.7

 
NA

 
13.1

 
NA





Exhibit 99.1


Borrowings

The Company has entered into repurchase agreements and issued exchangeable senior notes to finance the majority of its portfolio of investments. The following table summarizes certain characteristics of the Company’s borrowings at December 31, 2013 and 2012:
 
$ in thousands
December 31, 2013
 
December 31, 2012
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Weighted
Average
Remaining
Maturity
(Days)
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Weighted
Average
Remaining
Maturity
(Days)
Agency RMBS
10,281,154

 
0.38
%
 
19
 
11,713,565

 
0.48
%
 
16
Non-Agency RMBS
3,088,064

 
1.54
%
 
33
 
2,450,960

 
1.75
%
 
23
CMBS
2,082,457

 
1.39
%
 
23
 
1,555,935

 
1.51
%
 
18
Exchangeable Senior Notes
400,000

 
5.00
%
 
1535
 
—

 
—
%
 
0
Total
15,851,675

 
0.86
%
 
60
 
15,720,460

 
0.78
%
 
17



Exhibit 99.1

Interest Rate Hedges
As of December 31, 2013, the Company had the following interest rate derivatives outstanding:
$ in thousands
Counterparty
 
 
 
 
Notional
 
Maturity Date
 
Fixed Interest
Rate
in Contract
SunTrust Bank
 
 
 
 
100,000

 
7/15/2014
 
2.79
%
Deutsche Bank AG
 
 
 
 
200,000

 
1/15/2015
 
1.08
%
Deutsche Bank AG
 
 
 
 
250,000

 
2/15/2015
 
1.14
%
Credit Suisse International
 
 
 
 
100,000

 
2/24/2015
 
3.26
%
Credit Suisse International
 
 
 
 
100,000

 
3/24/2015
 
2.76
%
Wells Fargo Bank, N.A.
 
 
 
 
100,000

 
7/15/2015
 
2.85
%
Wells Fargo Bank, N.A.
 
 
 
 
50,000

 
7/15/2015
 
2.44
%
Morgan Stanley Capital Services, LLC
 
 
 
 
300,000

 
1/24/2016
 
2.12
%
The Bank of New York Mellon
 
 
 
 
300,000

 
1/24/2016
 
2.13
%
Morgan Stanley Capital Services, LLC
 
 
 
 
300,000

 
4/5/2016
 
2.48
%
Citibank, N.A.
 
 
 
 
300,000

 
4/15/2016
 
1.67
%
Credit Suisse International
 
 
 
 
500,000

 
4/15/2016
 
2.27
%
The Bank of New York Mellon
 
 
 
 
500,000

 
4/15/2016
 
2.24
%
JPMorgan Chase Bank, N.A.
 
 
 
 
500,000

 
5/16/2016
 
2.31
%
Goldman Sachs Bank USA
 
 
 
 
500,000

 
5/24/2016
 
2.34
%
Goldman Sachs Bank USA
 
 
 
 
250,000

 
6/15/2016
 
2.67
%
Wells Fargo Bank, N.A.
 
 
 
 
250,000

 
6/15/2016
 
2.67
%
JPMorgan Chase Bank, N.A.
 
 
 
 
500,000

 
6/24/2016
 
2.51
%
Citibank, N.A.
 
 
 
 
500,000

 
10/15/2016
 
1.93
%
Deutsche Bank AG
 
 
 
 
150,000

 
2/5/2018
 
2.90
%
ING Capital Markets LLC
 
 
 
 
350,000

 
2/24/2018
 
0.95
%
Morgan Stanley Capital Services, LLC
 
 
 
 
100,000

 
4/5/2018
 
3.10
%
ING Capital Markets LLC
 
 
 
 
300,000

 
5/5/2018
 
0.79
%
JPMorgan Chase Bank, N.A.
 
 
 
 
200,000

 
5/15/2018
 
2.93
%
UBS AG
 
 
 
 
500,000

 
5/24/2018
 
1.10
%
ING Capital Markets LLC
 
 
 
 
400,000

 
6/5/2018
 
0.87
%
The Royal Bank of Scotland Plc
 
 
 
 
500,000

 
9/5/2018
 
1.04
%
CME Clearing House
 
(3)
(4)
 
300,000

 
2/5/2021
 
2.50
%
CME Clearing House
 
(3)
(4)
 
300,000

 
2/5/2021
 
2.69
%
Wells Fargo Bank, N.A.
 
 
 
 
200,000

 
3/15/2021
 
3.14
%
Citibank, N.A.
 
 
 
 
200,000

 
5/25/2021
 
2.83
%
HSBC Bank USA, National Association
 
(1)
 
 
550,000

 
2/24/2022
 
2.45
%
The Royal Bank of Scotland Plc
 
(2)
 
 
400,000

 
3/15/2023
 
2.39
%
UBS AG
 
(2)
 
 
400,000

 
3/15/2023
 
2.51
%
HSBC Bank USA, National Association
 
 
 
 
250,000

 
6/5/2023
 
1.91
%
HSBC Bank USA, National Association
 
 
 
 
250,000

 
7/5/2023
 
1.97
%
The Royal Bank of Scotland Plc
 
 
 
 
500,000

 
8/15/2023
 
1.98
%
CME Clearing House
 
(4)
 
 
600,000

 
8/24/2023
 
2.88
%
UBS AG
 
 
 
 
250,000

 
11/15/2023
 
2.23
%
HSBC Bank USA, National Association
 
 
 
 
500,000

 
12/15/2023
 
2.20
%
Total
 
 
 
 
12,800,000

 
 
 
2.12
%
 
(1)
Forward start date of February 2015
(2)
Forward start date of March 2015
(3)
Forward start date of February 2016
(4)
Beginning June 10, 2013, regulations promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act mandate that the Company clear new interest rate swap transactions through a central counterparty. Transactions that are centrally cleared result in the Company facing a clearing house, rather than a swap dealer, as counterparty. Central clearing requires the Company to post collateral in the form of initial and variation margin to the clearing house which reduces default risk.


Exhibit 99.1

Average Balances
The table below presents certain information for the Company's portfolio for the three and twelve month periods ending December 31, 2013 and 2012.
 
Three Months Ended 
 December 31,
 
Years Ended 
December 31,
$ in thousands
2013
 
2012
 
2013
 
2012
Average Balances*:
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
1,750,763

 
2,114,987

 
1,897,780

 
2,302,218

30 year fixed-rate, at amortized cost
8,208,893

 
9,665,370

 
10,217,822

 
8,395,560

ARM, at amortized cost
218,345

 
116,608

 
122,225

 
150,377

Hybrid ARM, at amortized cost
1,472,418

 
591,081

 
758,625

 
1,028,432

MBS-CMO, at amortized cost
484,222

 
510,292

 
496,607

 
465,469

Non-Agency RMBS, at amortized cost
3,685,745

 
2,922,411

 
3,602,772

 
2,524,635

CMBS, at amortized cost
2,562,026

 
1,855,546

 
2,412,694

 
1,461,359

Residential Loans, at amortized cost
1,637,121

 
—

 
1,006,374

 
—

Commercial Loans, at amortized cost
43,938

 
—

 
14,858

 
—

Average MBS and Loans portfolio
20,063,471

 
17,776,295

 
20,529,757

 
16,328,050

Average Portfolio Yields (1):
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
15 year fixed-rate
2.61
%
 
2.37
%
 
2.32
%
 
2.54
%
30 year fixed-rate
3.13
%
 
2.88
%
 
2.88
%
 
3.12
%
ARM
2.41
%
 
2.02
%
 
2.35
%
 
2.51
%
Hybrid ARM
2.06
%
 
2.22
%
 
2.18
%
 
2.60
%
MBS—CMO
3.47
%
 
1.51
%
 
2.26
%
 
2.02
%
Non-Agency RMBS
4.60
%
 
4.80
%
 
4.60
%
 
5.16
%
CMBS
4.51
%
 
4.82
%
 
4.64
%
 
5.22
%
Residential loans
3.31
%
 
n/a

 
3.30
%
 
n/a

Commercial loans
9.17
%
 
n/a

 
9.77
%
 
n/a

Average portfolio
3.49
%
 
3.27
%
 
3.32
%
 
3.47
%
Average Borrowings*:
 
 
 
 
 
 
 
Agency RMBS
10,922,137

 
12,010,877

 
12,107,119

 
11,161,176

Non-Agency RMBS
3,087,235

 
2,313,014

 
2,854,423

 
1,902,754

CMBS
1,973,330

 
1,498,221

 
1,900,365

 
1,108,438

Exchangeable senior notes
400,000

 
—

 
321,111

 
—

Asset-backed securities
1,484,547

 
—

 
916,786

 
—

Total borrowed funds
17,867,249

 
15,822,112

 
18,099,804

 
14,172,368

Maximum borrowings during the period (2)
18,058,789

 
16,227,024

 
19,710,901

 
16,227,024

Average Cost of Funds (3):
 
 
 
 
 
 
 
Agency RMBS
0.39
%
 
0.45
%
 
0.40
%
 
0.39
%
Non-Agency RMBS
1.56
%
 
1.71
%
 
1.60
%
 
1.76
%
CMBS
1.43
%
 
1.50
%
 
1.45
%
 
1.55
%
Exchangeable senior notes
5.62
%
 
n/a

 
5.61
%
 
n/a

Asset-backed securities
2.95
%
 
n/a

 
2.91
%
 
n/a

Unhedged cost of funds
1.03
%
 
0.74
%
 
0.92
%
 
0.67
%
Hedged cost of funds
2.14
%
 
1.65
%
 
1.84
%
 
1.68
%
Average Equity (4):
2,403,443

 
2,482,487

 
2,577,817

 
2,262,851

Average debt/equity ratio (average during period)
7.4x

 
6.4x

 
7.0x

 
6.3x

Debt/equity ratio (as of period end)
7.3x

 
6.1x

 
7.3x

 
6.1x


Exhibit 99.1

*
Average amounts for each period are based on weighted month-end balances; all percentages are annualized. For the three and twelve months ended December 31, 2013 the average balances are presented on an amortized cost basis.
(1)
Average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the average of amortized cost of the investments. All yields are annualized.
(2)
Amount represents the maximum borrowings at month-end during each of the respective periods.
(3)
Average cost of funds is calculated by dividing annualized interest expense by our average borrowings.
(4)
Average equity is calculated based on a weighted balance basis.


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