Attached files
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8-K - 8-K - Invesco Mortgage Capital Inc. | ivr20158k-1215main.htm |
EX-99.2 - EXHIBIT 99.2 - Invesco Mortgage Capital Inc. | ivr20158k-1215exx992.htm |
Exhibit 99.1
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet, pro forma condensed statements of operations and pro forma debt-to-equity ratio (collectively, the “Pro Forma Financial Information”) are based upon the previously reported consolidated financial statements of Invesco Mortgage Capital Inc. (the “Company,” “we,” or “our”). The Pro Forma Financial Information has been prepared to illustrate the effect of the sale (the "Transaction") of certain beneficial interests (the “Securities”) in consolidated residential loan securitization trusts (the “Residential Securitizations”) resulting in the deconsolidation of the Residential Securitizations.
The unaudited pro forma condensed consolidated balance sheet and pro forma debt-to-equity ratio as of September 30, 2015 is presented as if the Transaction and resulting deconsolidation of the Residential Securitizations had occurred on September 30, 2015. The unaudited pro forma condensed consolidated statement of operations for the nine-month period ended September 30, 2015 and for the year ended December 31, 2014 are presented as if the Transaction and resulting deconsolidation of the Residential Securitizations had occurred on January 1, 2014 or the date the Residential Securitizations were initially consolidated, whichever came later.
The previously reported condensed consolidated financial statements referred to above were included in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and its Annual Report on Form 10K/A for the year ended December 31, 2014, as applicable, each previously filed with the Securities and Exchange Commission. The accompanying Pro Forma Financial Information presented herein should be read in conjunction with the Company’s previously reported condensed consolidated financial statements and notes thereto.
The Pro Forma Financial Information includes pro forma adjustments which reflect transactions and events that (a) are directly attributable to the Transaction and resulting deconsolidation of the Residential Securitizations, (b) are factually supportable, and (c) with respect to the consolidated statements of operations, have a continuing impact on consolidated results. See Note 3 of the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements herein for a description of each pro forma adjustment.
The Pro Forma Financial Information was prepared for informational purposes only and is not necessarily indicative of the financial position (including the debt-to-equity ratio) or results of operations that would have occurred if the Transaction and resulting deconsolidation of the Residential Securitizations occurred on the date or at the beginning of the period indicated, nor is it indicative of the future financial position or results of operations of the Company. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in connection with the Pro Forma Financial Information.
The Pro Forma Financial Information does not reflect future events that may occur after the deconsolidation, including potential general and administrative cost savings or use of proceeds from the sales of certain of our beneficial interests in the Residential Securitizations. In the opinion of management, all material adjustments necessary to reflect the effects of the Transaction and resulting deconsolidation, described in the notes to the unaudited pro forma condensed consolidated financial statements have been included and are based upon available information and assumptions that the Company believes are reasonable.
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Exhibit 99.1
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
As of September 30, 2015 | ||||||||
In thousands, except per share amounts | Historical (A) | Adjustments | Pro Forma | |||||
ASSETS | ||||||||
Mortgage-backed and credit risk transfer securities, at fair value | 16,814,961 | 362,944 | (B) | 17,177,905 | ||||
Residential loans, held-for-investment | 3,307,249 | (3,307,249 | ) | (B) | — | |||
Commercial loans, held-for-investment | 187,038 | — | 187,038 | |||||
Cash and cash equivalents | 76,658 | 22,256 | (C) | 98,914 | ||||
Due from counterparties | 174,741 | — | 174,741 | |||||
Investment related receivable | 24,897 | — | 24,897 | |||||
Accrued interest receivable | 69,064 | (14,440 | ) | (B) | 54,624 | |||
Derivative assets, at fair value | 1,308 | — | 1,308 | |||||
Deferred securitization and financing costs | 10,689 | (4,482 | ) | (C) | 6,207 | |||
Other investments | 113,297 | — | 113,297 | |||||
Other assets | 1,444 | — | 1,444 | |||||
Total assets | 20,781,346 | (2,940,971 | ) | 17,840,375 | ||||
LIABILITIES AND EQUITY | ||||||||
Liabilities: | ||||||||
Repurchase agreements | 12,912,131 | (47,110 | ) | (C) | 12,865,021 | |||
Secured loans | 1,675,000 | — | 1,675,000 | |||||
Asset-backed securities issued by securitization trusts | 2,859,423 | (2,859,423 | ) | (B) | — | |||
Exchangeable senior notes | 400,000 | — | 400,000 | |||||
Derivative liability, at fair value | 343,897 | — | 343,897 | |||||
Dividends and distributions payable | 54,067 | — | 54,067 | |||||
Investment related payable | 54,996 | — | 54,996 | |||||
Accrued interest payable | 37,296 | (15,243 | ) | (B) | 22,053 | |||
Accounts payable and accrued expenses | 3,910 | (1,424 | ) | (B) | 2,486 | |||
Due to affiliate | 11,259 | — | 11,259 | |||||
Total liabilities | 18,351,979 | (2,923,200 | ) | 15,428,779 | ||||
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 | |||||
Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 119,453,846 and 123,110,454 shares issued and outstanding, respectively | 1,195 | — | 1,195 | |||||
Additional paid in capital | 2,482,742 | — | 2,482,742 | |||||
Accumulated other comprehensive income | 446,857 | — | 446,857 | |||||
Retained earnings (distributions in excess of earnings) | (813,520 | ) | (17,564 | ) | (C) | (831,084 | ) | |
Total stockholders’ equity | 2,402,490 | (17,564 | ) | 2,384,926 | ||||
Non-controlling interest | 26,877 | (207 | ) | (D) | 26,670 | |||
Total equity | 2,429,367 | (17,771 | ) | 2,411,596 | ||||
Total liabilities and equity | 20,781,346 | (2,940,971 | ) | 17,840,375 |
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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Exhibit 99.1
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30, 2015 | ||||||||
In thousands, except share amounts | Historical (E) | Adjustments | Pro Forma | |||||
Interest Income | ||||||||
Mortgage-backed and credit risk transfer securities | 390,623 | 8,499 | (G) | 399,122 | ||||
Residential loans | 88,001 | (88,001 | ) | (F) | — | |||
Commercial loans | 11,349 | — | 11,349 | |||||
Total interest income | 489,973 | (79,502 | ) | 410,471 | ||||
Interest Expense | ||||||||
Repurchase agreements | 125,544 | (577 | ) | (H) | 124,967 | |||
Secured loans | 4,639 | — | 4,639 | |||||
Exchangeable senior notes | 16,840 | — | 16,840 | |||||
Asset-backed securities | 64,913 | (64,913 | ) | (F) | — | |||
Total interest expense | 211,936 | (65,490 | ) | 146,446 | ||||
Net interest income | 278,037 | (14,012 | ) | 264,025 | ||||
(Reduction in) provision for loan losses | (213 | ) | 213 | (F) | — | |||
Net interest income after (reduction in) provision for loan losses | 278,250 | (14,225 | ) | 264,025 | ||||
Other Income (loss) | ||||||||
Gain (loss) on investments, net | 10,090 | (2,889 | ) | (I) | 7,201 | |||
Equity in earnings of unconsolidated ventures | 9,131 | — | 9,131 | |||||
Gain (loss) on derivative instruments, net | (287,344 | ) | — | (287,344 | ) | |||
Realized and unrealized credit derivative income (loss), net | 24,904 | — | 24,904 | |||||
Other investment income (loss), net | 1,518 | — | 1,518 | |||||
Total other income (loss) | (241,701 | ) | (2,889 | ) | (244,590 | ) | ||
Expenses | ||||||||
Management fee – related party | 28,816 | — | 28,816 | |||||
General and administrative | 6,186 | — | 6,186 | |||||
Consolidated securitization trusts | 6,544 | (6,544 | ) | (F) | — | |||
Total expenses | 41,546 | (6,544 | ) | 35,002 | ||||
Net income (loss) | (4,997 | ) | (10,570 | ) | (15,567 | ) | ||
Net income (loss) attributable to non-controlling interest | (80 | ) | (170 | ) | (J) | (250 | ) | |
Net income (loss) attributable to Invesco Mortgage Capital Inc. | (4,917 | ) | (10,400 | ) | (15,317 | ) | ||
Dividends to preferred stockholders | 17,148 | — | 17,148 | |||||
Net income (loss) attributable to common stockholders | (22,065 | ) | (10,400 | ) | (32,465 | ) | ||
Earnings (loss) per share: | — | |||||||
Net income (loss) attributable to common stockholders | — | |||||||
Basic | (0.18 | ) | (0.08 | ) | (0.26 | ) | ||
Diluted | (0.18 | ) | (0.08 | ) | (0.26 | ) | ||
Dividends declared per common share | 1.30 | — | 1.30 | |||||
Weighted average number of shares of common stock: | ||||||||
Basic | 122,763,243 | — | 122,763,243 | |||||
Diluted | 124,188,243 | — | 124,188,243 |
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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Exhibit 99.1
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Year Ended December 31, 2014 | ||||||||
In thousands, except share amounts | Historical (As Restated) (K) | Adjustments | Pro Forma | |||||
Interest Income | ||||||||
Mortgage-backed and credit risk transfer securities | 579,062 | 9,526 | (M) | 588,588 | ||||
Residential loans | 88,073 | (88,073 | ) | (L) | — | |||
Commercial loans | 9,508 | — | 9,508 | |||||
Total interest income | 676,643 | (78,547 | ) | 598,096 | ||||
Interest Expense | ||||||||
Repurchase agreements | 188,699 | (523 | ) | (N) | 188,176 | |||
Secured loans | 2,576 | — | 2,576 | |||||
Exchangeable senior notes | 22,461 | — | 22,461 | |||||
Asset-backed securities | 68,159 | (68,159 | ) | (L) | — | |||
Total interest expense | 281,895 | (68,682 | ) | 213,213 | ||||
Net interest income | 394,748 | (9,865 | ) | 384,883 | ||||
(Reduction in) provision for loan losses | (142 | ) | 142 | (L) | — | |||
Net interest income after (reduction in) provision for loan losses | 394,890 | (10,007 | ) | 384,883 | ||||
Other Income (loss) | ||||||||
Gain (loss) on investments, net | (87,168 | ) | 7,263 | (P) | (79,905 | ) | ||
Equity in earnings of unconsolidated ventures | 6,786 | — | 6,786 | |||||
Gain (loss) on derivative instruments, net | (487,469 | ) | — | (487,469 | ) | |||
Realized and unrealized credit derivative income (loss), net | (2,866 | ) | — | (2,866 | ) | |||
Other investment income (loss), net | (2,045 | ) | — | (2,045 | ) | |||
Total other income (loss) | (572,762 | ) | 7,263 | (565,499 | ) | |||
Expenses | ||||||||
Management fee – related party | 37,599 | — | 37,599 | |||||
General and administrative | 15,267 | (7,127 | ) | (O) | 8,140 | |||
Total expenses | 52,866 | (7,127 | ) | 45,739 | ||||
Net income (loss) | (230,738 | ) | 4,383 | (226,355 | ) | |||
Net income (loss) attributable to non-controlling interest | (2,632 | ) | 50 | (Q) | (2,582 | ) | ||
Net income (loss) attributable to Invesco Mortgage Capital Inc. | (228,106 | ) | 4,333 | (223,773 | ) | |||
Dividends to preferred stockholders | 17,378 | — | 17,378 | |||||
Net income (loss) attributable to common stockholders | (245,484 | ) | 4,333 | (241,151 | ) | |||
Earnings (loss) per share: | ||||||||
Net income (loss) attributable to common stockholders | ||||||||
Basic | (1.99 | ) | 0.04 | (1.95 | ) | |||
Diluted | (1.99 | ) | 0.04 | (1.95 | ) | |||
Dividends declared per common share | 1.95 | — | 1.95 | |||||
Weighted average number of shares of common stock: | ||||||||
Basic | 123,104,934 | — | 123,104,934 | |||||
Diluted | 124,529,934 | — | 124,529,934 |
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
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Exhibit 99.1
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Description of Transaction
On December 9, 2015, IAS Asset I LLC and IAS Services LLC, wholly-owned subsidiaries of Invesco Mortgage Capital Inc. (the “Company,” “we,” or “our”) completed the sale (the “Transaction”) of certain beneficial interests (the “Securities”) in consolidated residential loan securitization trusts (the “Residential Securitizations”) for an aggregate sale price of $69.1 million. The Securities were sold to unaffiliated third parties through multiple brokers in a competitive bid process and included the most subordinated classes of asset-backed securities issued by the Residential Securitizations.
As described in Notes 2 and 3 of our Annual Report on Form 10-K/A for the year ended December 31, 2014, the Residential Securitizations are variable interest entities. The Company consolidated the Residential Securitizations because the Company had both (i) the power to direct the activities of the Residential Securitizations that most significantly impact the economic performance of the Residential Securitizations, and (ii) the right to receive benefits from the Residential Securitizations or the obligation to absorb losses of the Residential Securitizations that could be significant. The Company does not manage the Residential Securitizations or serve as the loan servicer for the Residential Securitizations. A portion of the Securities sold in the Transaction are the most subordinated classes of asset-backed securities issued by the Residential Securitizations and the holders of these Securities have certain default oversight rights on defaulted residential loans held by the Residential Securitizations. As a result of the Transaction, the Company no longer has the power to direct the activities of the Residential Securitizations through default oversight rights and is therefore no longer the primary beneficiary of the Residential Securitizations. The Company will deconsolidate the assets and liabilities of the Residential Securitizations as of the date of the Transaction. Total assets and total liabilities of the Residential Securitizations were approximately $3.3 billion and $2.9 billion, respectively, as of September 30, 2015. Retained interests in asset-backed securities issued by the Residential Securitizations will be recorded in mortgage-backed and credit risk transfer securities on the Company’s consolidated balance sheet at fair market value as of the date of the Transaction.
Note 2 – Basis of Presentation
The Pro Forma Financial Information is based upon the Company's previously reported condensed consolidated financial statements, which were included in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 and its Annual Report on Form 10K/A for the year ended December 31, 2014, as applicable, each previously filed with the Securities and Exchange Commission.
The pro forma adjustments are based upon currently available information, and assumptions and estimates which management believes to be reasonable.
Note 3 – Pro Forma Adjustments
We made the following pro forma adjustments to our unaudited condensed consolidated balance sheet as of September 30, 2015:
(A) | Reflects our historical unaudited condensed consolidated balance sheet as previously filed on Form 10-Q as of September 30, 2015. |
(B) | Represents adjustments to deconsolidate eleven Residential Securitizations as if the deconsolidation occurred on September 30, 2015. The adjustment to mortgage-backed and credit risk transfer securities represents the fair value of our retained interests in the Residential Securitizations as of September 30, 2015. The Company's beneficial interests in the Residential Securitizations were previously eliminated in consolidation. |
(C) | Represents adjustments to record cash proceeds of the Transaction, the repayment of repurchase agreements that were collateralized by the Securities sold in the Transaction and an estimated loss arising from the Transaction and resulting deconsolidation of the Residential Securitizations. The estimated loss was calculated using the aggregate of the sale proceeds as of the Transaction date and the fair value of retained asset-backed securities issued by the Residential Securitizations as of September 30, 2015, less carrying amounts as of September 30, 2015. The actual loss on the Transaction will be calculated using the aggregate of the sales proceeds as of the Transaction date and the fair value of retained asset-backed securities issued by the Residential Securitizations as of the Transaction date, less carrying amounts as of the Transaction date and will differ from the estimated loss. |
(D) | Represents adjustment to allocate pro forma net income (loss) adjustments to non-controlling interest. |
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Exhibit 99.1
We made the following pro forma adjustments to our unaudited condensed consolidated statement of operations for the nine-month period ended September 30, 2015:
(E) | Reflects our historical unaudited condensed consolidated statement of operations as previously filed on Form 10-Q for the nine-month period ended September 30, 2015. |
(F) | Represents adjustments to deconsolidate eleven Residential Securitizations as if the deconsolidation occurred on January 1, 2014 or the date the Residential Securitizations were initially consolidated, whichever came later. |
(G) | Represents adjustment to record interest income on retained interests that was previously eliminated in consolidation. |
(H) | Represents adjustment to eliminate interest expense on repurchase agreements that were collateralized by the Securities sold in the Transaction. |
(I) | Represents the mark to market adjustment for interest only securities and excess servicing certificates that were retained in the Transaction. This adjustment assumes the Company elected the fair value option for interest only securities and excess servicing certificates as of January 1, 2014. |
(J) | Represents adjustment to allocate pro forma net income (loss) adjustments to non-controlling interest. |
We made the following pro forma adjustments to our audited condensed consolidated statement of operations for the year ended December 31, 2014:
(K) | Reflects our historical audited consolidated statement of operations as previously filed on Form 10-K/A for the year ended December 31, 2014. |
(L) | Represents adjustments to deconsolidate eleven Residential Securitizations as if the deconsolidation occurred on January 1, 2014 or the date the Residential Securitizations were initially consolidated, whichever came later. |
(M) | Represents adjustment to record interest income on retained interests that was previously eliminated in consolidation. |
(N) | Represents adjustment to eliminate interest expense on repurchase agreements that were collateralized by the Securities sold in the Transaction. |
(O) | Represents adjustment to eliminate organization costs of $1.0 million and direct operating costs of $6.1 million associated with the Residential Securitizations. Direct operating costs include servicer and trustee fees paid directly by the Residential Securitizations. |
(P) | Represents the mark to market adjustment for interest only securities and excess servicing certificates that were retained in the Transaction. This adjustment assumes the Company elected the fair value option for interest only securities and excess servicing certificates as of January 1, 2014. |
(Q) | Represents adjustment to allocate pro forma net income (loss) adjustments to non-controlling interest. |
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Exhibit 99.1
INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
PRO FORMA DEBT-TO-EQUITY RATIO
As of September 30, 2015 | ||||||||
In thousands | Historical | Adjustments | Pro Forma | |||||
Repurchase agreements | 12,912,131 | (47,110 | ) | (1) | 12,865,021 | |||
Secured loans | 1,675,000 | — | 1,675,000 | |||||
Asset-backed securities issued by securitization trusts | 2,859,423 | (2,859,423 | ) | (2) | — | |||
Exchangeable senior notes | 400,000 | — | 400,000 | |||||
Total debt | 17,846,554 | (2,906,533 | ) | 14,940,021 | ||||
Total equity | 2,429,367 | (17,771 | ) | (3) | 2,411,596 | |||
Debt-to-equity ratio | 7.3 | 6.2 |
(1) | Represents the repayment of repurchase agreements that were collateralized by the Securities sold in the Transaction. |
(2) | Represents adjustment to deconsolidate eleven Residential Securitizations as if the deconsolidation occurred on September 30, 2015. |
(3) | Represents adjustments to reflect an estimated loss arising from the Transaction and resulting deconsolidation of the Residential Securitizations and an adjustment to allocate pro forma net income (loss) adjustments to non-controlling interest. The estimated loss was calculated using the aggregate of the sale proceeds as of the Transaction date and the fair value of retained asset-backed securities issued by the Residential Securitizations as of September 30, 2015, less carrying amounts as of September 30, 2015. The actual loss on the Transaction will be calculated using the aggregate of the sales proceeds as of the Transaction date and the fair value of retained asset-backed securities issued by the Residential Securitizations as of the Transaction date, less carrying amounts as of the Transaction date and will differ from the estimated loss. |
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