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Form 8-K Invesco Mortgage Capital For: Aug 17

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August 17, 2015 4:38 PM EDT


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): August 17, 2015
 

(Exact name of registrant as specified in its charter)

 
 
 
 
 
 
Maryland
 
001-34385
 
 26-2749336
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
1555 Peachtree Street, NE, Atlanta, Georgia
 
30309
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (404) 892-0896
n/a
(Former name or former address, if changed since last report.)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





 

Item 2.02
Results of Operations and Financial Condition.

On August 17, 2015, Invesco Mortgage Capital Inc. (the “registrant”) issued a press release announcing its financial results for the quarter ended June 30, 2015 (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
 
Press Release, dated August 17, 2015, issued by Invesco Mortgage Capital Inc.








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/ Richard Lee Phegley, Jr.
Richard Lee Phegley, Jr.
Chief Financial Officer


Date: August 17, 2015
 





Exhibit Index
 
 
 
 
Exhibit No.
 
Description
99.1
 
Press Release, dated August 17, 2015, issued by Invesco Mortgage Capital Inc.



Exhibit 99.1

Press Release
For immediate release
Invesco Mortgage Capital Inc. Reports Second Quarter 2015 Financial Results
Atlanta - August 17, 2015 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced financial results for the quarter ended June 30, 2015, reporting core earnings* of $0.41 per common share and book value per diluted common share** of $18.62. Second quarter core earnings reflect lower interest income and contribution to earnings from unconsolidated real estate joint ventures relative to first quarter 2015. Interest income was primarily impacted by faster prepayment speeds, higher amortization, and reinvestment of principal repayments into assets with lower yields.

"Although market conditions weakened in the second quarter, our efforts to moderate risk preserved capital. Our 1.1% decline in book value per share and 3.7% economic return year to date rank among the best in the industry," said Richard King, President and CEO. During the six months ended June 30, 2015, IVR declared dividends totaling $0.90 per common share and maintained a relatively stable book value of $18.62 per diluted common share versus $19.37 last quarter, $18.82 at year end 2014 and $17.97 at the end of 2013.

During the second quarter of 2015, the Company reinvested cash flow into Agency Hybrid ARMs and closed two commercial real estate loans totaling $71 million. "We believe our company is well positioned for the current market environment and to benefit from improving real estate fundamentals," said Mr. King.

On August 10, 2015, the Company announced the restatement of its financial statements for the years ended 2013 and 2014 and the quarter ended March 31, 2015. The restatement corrects an error in the U.S. GAAP accounting treatment for credit risk transfer securities issued by government-sponsored enterprises (“GSE CRTs”) and interest-only strips of residential mortgage-backed securities that are guaranteed by a U.S. government agency (“Agency MBS IOs”). We determined that these assets include embedded derivatives which should be accounted for under the accounting guidance for derivatives with changes in fair value reflected in the income statement instead of other comprehensive income. Previously reported key metrics such as economic return, book value per share, core earnings per common share and leverage ratios did not change. The changes also have no impact on our taxable income or compliance with REIT tax requirements.
 
Highlights
 
Ÿ
Q2 2015 core earnings* of $50.0 million, core earnings per common share of $0.41, and a common stock dividend of $0.45 per share
 
Ÿ
YTD core earnings* per common share of $0.91 and YTD common stock dividend of $0.90 per common share
 
Ÿ
Q2 2015 book value per diluted common share** was$18.62 vs. $19.37 at Q1 2015 and $18.82 at Q4 2014
 
Ÿ
Economic return*** for the three and six months ended June 30, 2015 of -1.5% and 3.7%, respectively
 
Ÿ
Portfolio equity allocation strategically positioned for improving real estate fundamentals.

- Equity allocation: 38% to Agency RMBS, 32% to residential credit and 30% to commercial credit as of June 30, 2015
- Increased our allocation to Agency Hybrid ARMs in Q2 2015
- Closed two commercial loans totaling $71 million
 
Ÿ
Q2 2015 comprehensive loss attributable to common stockholders was $36.7 million or ($0.30) per common share vs. comprehensive income attributable to common stockholders of $123.1 million or $1.00 per common share for Q1 2015
 
Ÿ
Q2 2015 U.S. GAAP net income attributable to common stockholders of $139.9 million or $1.14 basic earnings per common share and $1.04 earnings per diluted common share reflecting a $56.0 million net gain on interest rate hedges
* 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-Generally Accepted Accounting Principles ("GAAP") financial measures. Refer to the section entitled "Non-GAAP Financial Measures" below 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, yield), total interest expense (and by calculation, cost of funds), net interest income (and by calculation, net interest rate margin) and total debt-to-equity ratio.
**Book value per diluted common share is calculated as total equity less the liquidation preference of our Series A Preferred Stock ($140.0 million) and Series B Preferred Stock ($155.0 million); divided by total common shares outstanding plus Operating Partnership Units convertible into shares of common stock (1,425,000 shares).
***Economic return for the quarter ended June 30, 2015 is defined as the change in book value per diluted common share from March 31, 2015 to June 30, 2015 of ($0.75); plus dividends declared of $0.45 per common share; divided by the March 31, 2015 book value per diluted common share of $19.37. Economic return for the six months ended June 30, 2015 is defined as the change in book value per diluted common share from December 31, 2014 to June 30, 2015 of ($0.20); plus dividends declared of $0.90 per common share; divided by the December 31, 2014 book value per diluted common share of $18.82.

 
1
 
Exhibit 99.1

Key performance indicators for the quarters ended June 30, 2015 and March 31, 2015 are summarized in the table below.
($ in millions, except share amounts)
Q2 ‘15
Q1 ‘15
 
(unaudited)
(As Restated) (unaudited)
Average earning assets (at amortized costs)

$20,574.9


$20,427.4

Average borrowed funds
18,284.1

18,110.5

Average equity

$2,458.2


$2,452.9

 
 
 
Interest income

$160.8


$167.8

Interest expense
70.4

72.3

Net interest income
90.4

95.5

Total other income (loss)
70.4

(94.1
)
Total expenses
13.6

13.3

Net income (loss)
147.3

(11.9
)
Net income (loss) attributable to non-controlling interest
1.7

(0.1
)
Dividends to preferred stockholders
5.7

5.7

Net income (loss) attributable to common stockholders

$139.9


($17.4
)
 
 
 
Average portfolio yield
3.12
%
3.29
%
Cost of funds
1.54
%
1.60
%
Total debt to equity ratio
6.9
x
6.8
x
Book value per common share (diluted)**

$18.62


$19.37

Earnings (loss) per common share (basic)

$1.14


($0.14
)
Dividends declared per common share

$0.45


$0.45

Dividends declared per preferred share on Series A Preferred Stock

$0.4844


$0.4844

Dividends declared per preferred share on Series B Preferred Stock

$0.4844


$0.4844

 
 
 
Non-GAAP Financial Measures*:
 
 
Core earnings

$50.0


$62.0

Core earnings per common share

$0.41


$0.50

Effective interest income

$167.0


$173.7

Effective yield
3.24
%
3.41
%
Effective interest expense

$100.1


$98.7

Effective cost of funds
2.19
%
2.19
%
Effective net interest income

$66.9


$74.9

Effective interest rate margin
1.05
%
1.22
%
Repurchase agreement debt-to-equity ratio
5.3
x
5.2
x

* 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-Generally Accepted Accounting Principles ("GAAP") financial measures. Refer to the section entitled "Non-GAAP Financial Measures" below 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, yield), total interest expense (and by calculation, cost of funds), net interest income (and by calculation, net interest rate margin) and total debt-to-equity ratio.
**Book value per diluted common share is calculated as total equity less the liquidation preference of our Series A Preferred Stock ($140.0 million) and Series B Preferred Stock ($155.0 million); divided by total common shares outstanding plus Operating Partnership Units convertible into shares of common stock (1,425,000 shares).

***Economic return for the quarter ended June 30, 2015 is defined as the change in book value per diluted common share from March 31, 2015 to June 30, 2015 of ($0.75); plus dividends declared of $0.45 per common share; divided by the March 31, 2015 book value per diluted common share of $19.37. Economic return for the six months ended June 30, 2015 is defined as the change in book value per diluted common share from December 31, 2014 to June 30, 2015 of ($0.20); plus dividends declared of $0.90 per common share; divided by the December 31, 2014 book value per diluted common share of $18.82.


 
2
 
Exhibit 99.1

Financial Summary
During the second quarter of 2015, the Company generated $50.0 million in core earnings, a decrease of $12.0 million from the first quarter of 2015. Lower core earnings were primarily due to lower contribution to earnings from unconsolidated real estate joint ventures and lower net interest income due primarily to faster prepayment speeds and higher amortization on our Agency residential mortgage-backed securities ("Agency RMBS"). Net income attributable to common stockholders for the second quarter of 2015 was $139.9 million, compared to net loss attributable to common stockholders of $17.4 million for the first quarter of 2015. The increase in second quarter of 2015 net income attributable to common stockholders was primarily due to a $56.0 million gain on interest rate hedges during the second quarter versus a $122.7 million loss on interest rate hedges in the first quarter of 2015. Second quarter 2015 book value per diluted common share declined to $18.62 as Agency RMBS and credit spreads widened with generally weaker market conditions due to uncertainty with respect to the crisis in Greece, and in anticipation of the first increase in the federal funds rate.
The Company reduced its holdings in 30 year fixed-rate Agency RMBS by $266.8 million but added $524.4 million Agency Hybrid Adjustable Rate Mortgage (ARM) securities to the investment portfolio in the second quarter of 2015. The Company’s MBS and GSE CRT portfolio totaled $17.2 billion, a decrease of $145.4 million from March 31, 2015. The non-Agency MBS portfolio declined by $147.0 million primarily due to continued paydowns.
For the quarter ended June 30, 2015, average earning assets were $20.6 billion, representing an increase of $147.5 million from March 31, 2015. The portfolio generated interest income of $160.8 million during the three months ended June 30, 2015, which reflects a decrease of $6.9 million from the three months ended March 31, 2015. The decrease in interest income was the result of a decline in average portfolio yield from 3.29% in the first quarter of 2015 to 3.12% for the three months ended June 30, 2015. The lower portfolio yield in the second quarter of 2015 primarily reflects lower yields on Agency RMBS.
For the quarter ended June 30, 2015, the Company had average borrowed funds of approximately $18.3 billion and effective interest expense of $100.1 million, compared to $18.1 billion and $98.7 million, respectively, for the first quarter of 2015. The Company's effective cost of funds was 2.19% for both the second quarter and first quarter of 2015. The slight increase in average borrowed funds for the second quarter is due to higher average borrowings for Agency RMBS.
Total expenses for the second quarter of 2015 were approximately $13.6 million, compared to $13.3 million for the first quarter of 2015. Second quarter 2015 total expenses include $2.3 million of securitization trust expenses associated with direct operating expenses of the Company's consolidated residential loan securitizations versus $2.2 million in the first quarter of 2015. Securitization trust expenses rose slightly in the second quarter due to the full quarter impact of consolidating an additional securitization that closed in March 2015. General and administrative expenses were $2.0 million in the second quarter of 2015, an increase of $0.2 million from the first quarter of 2015. The increase in general and administrative expenses was primarily due to higher tax, legal and other professional fees in the three months ended June 30, 2015. The ratio of annualized operating expenses to average equity* for the second quarter of 2015 was 1.84%, an increase of 2 basis points from the first quarter of 2015.
In the second quarter of 2015, the Company declared the following dividends: a common stock dividend of $0.45 per share paid on July 28, 2015; a Series A preferred stock dividend of $0.4844 per share paid on July 27, 2015; and a Series B preferred stock dividend of $0.4844 per share that will be paid on September 28, 2015.



*The ratio of consolidated operating 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 a weighted balance basis. The Company excludes expenses of consolidated securitization trusts from this calculation to facilitate comparison of the Company's operating expenses to peers.



 
3
 
Exhibit 99.1

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., a leading independent global investment management firm.


 
4
 
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 Tuesday, August 18, 2015, at 9:00 a.m. ET, by calling one of the following numbers:

North America Toll Free:    888-942-8507
International:        415-228-4839
Passcode:         Invesco

An audio replay will be available until 5:00 pm ET on September 1, 2015 by calling:

866-369-3652 (North America) or 203-369-0244 (International)

The presentation slides that will be reviewed during the call will be available on the Company’s website at www.invescomortgagecapital.com.

Cautionary Notice Regarding Forward-Looking Statements

This press release, the related presentation and comments made in the associated conference call, may include statements and information that constitute “forward-looking statements” within the meaning of the U.S. securities laws as defined in the Private Securities Litigation Reform Act of 1995, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements include our views on the risk positioning of our portfolio, domestic and global market conditions (including the residential and commercial real estate market), the market for our target assets, mortgage reform programs, our financial performance, including our core earnings, economic return, comprehensive income and changes in our book value, 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, and the impact of the restatement of our consolidated financial statements for certain periods and the adequacy of our disclosure controls and procedures and internal controls over financial reporting.  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: Tony Semak, 800-241-5477


 
5
 
Exhibit 99.1



INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
In thousands, except share amounts
2015
 
2014 
 (As Restated)
 
2015
 
2014 
 (As Restated)
Interest Income

 

 

 

Mortgage-backed and credit risk transfer securities
126,098

 
148,195

 
261,363

 
296,600

Residential loans (1)
30,247

 
20,471

 
59,621

 
38,175

Commercial loans
4,491

 
2,061

 
7,606

 
3,680

Total interest income
160,836

 
170,727

 
328,590

 
338,455

Interest Expense

 

 

 

Repurchase agreements
40,931

 
47,822

 
84,241

 
96,893

Secured loans
1,553

 
176

 
3,017

 
176

Exchangeable senior notes
5,613

 
5,613

 
11,220

 
11,220

Asset-backed securities (1)
22,329

 
15,826

 
44,227

 
29,761

Total interest expense
70,426

 
69,437

 
142,705

 
138,050

Net interest income
90,410

 
101,290

 
185,885

 
200,405

(Reduction in) provision for loan losses
(70
)
 
(50
)
 
(132
)
 
157

Net interest income after (reduction in) provision for loan losses
90,480

 
101,340

 
186,017

 
200,248

Other Income (loss)

 

 

 

Gain (loss) on investments, net
10,876

 
(20,197
)
 
13,048

 
(37,969
)
Equity in earnings of unconsolidated ventures
1,231

 
3,894

 
7,237

 
4,335

Gain (loss) on derivative instruments, net
56,003

 
(167,816
)
 
(66,742
)
 
(319,128
)
Realized and unrealized credit derivative income (loss), net
614

 
32,055

 
21,976

 
49,542

Other investment income (loss), net
1,673

 
—

 
779

 
—

Total other income (loss)
70,397

 
(152,064
)
 
(23,702
)
 
(303,220
)
Expenses
 
 
 
 
 
 
 
Management fee – related party
9,343

 
9,327

 
18,758

 
18,662

General and administrative
1,952

 
2,376

 
3,679

 
4,388

Consolidated securitization trusts (1)
2,256

 
1,363

 
4,412

 
2,547

Total expenses
13,551

 
13,066

 
26,849

 
25,597

Net income (loss)
147,326

 
(63,790
)
 
135,466

 
(128,569
)
Net income (loss) attributable to non-controlling interest
1,685

 
(729
)
 
1,549

 
(1,462
)
Net income (loss) attributable to Invesco Mortgage Capital Inc.
145,641

 
(63,061
)
 
133,917

 
(127,107
)
Dividends to preferred stockholders
5,716

 
2,712

 
11,432

 
5,425

Net income (loss) attributable to common stockholders
139,925

 
(65,773
)
 
122,485

 
(132,532
)
Earnings (loss) per share:


 


 


 


Net income (loss) attributable to common stockholders

 

 

 

Basic
1.14

 
(0.53
)
 
0.99

 
(1.08
)
Diluted
1.04

 
(0.53
)
 
0.96

 
(1.08
)
Dividends declared per common share
0.45

 
0.50

 
0.90

 
1.00

(1)
The condensed consolidated statements of operations include income and expenses of consolidated variable interest entities. 
 

 
6
 
Exhibit 99.1



INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
In thousands
2015
 
2014 
 (As Restated)
 
2015
 
2014 
 (As Restated)
Net income (loss)
147,326

 
(63,790
)
 
135,466

 
(128,569
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net
(193,322
)
 
244,615

 
(67,368
)
 
406,312

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net
(1,669
)
 
20,766

 
(4,603
)
 
32,484

Reclassification of amortization of net deferred losses on de-designated interest rate swaps to repurchase agreements interest expense
16,313

 
21,532

 
35,458

 
42,828

Total Other comprehensive income (loss)
(178,678
)
 
286,913

 
(36,513
)
 
481,624

Comprehensive income (loss)
(31,352
)
 
223,123

 
98,953

 
353,055

Less: Comprehensive income (loss) attributable to non-controlling interest
357

 
(2,553
)
 
(1,133
)
 
(4,036
)
Less: Dividends to preferred stockholders
(5,716
)
 
(2,712
)
 
(11,432
)
 
(5,425
)
Comprehensive income (loss) attributable to common stockholders
(36,711
)
 
217,858

 
86,388

 
343,594





 
7
 
Exhibit 99.1

INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
  
As of
 In thousands except share amounts
June 30, 2015
 
December 31, 2014
 
(Unaudited)
 
(As Restated)
ASSETS
 
Mortgage-backed and credit risk transfer securities, at fair value
17,195,238

 
17,248,895

Residential loans, held-for-investment (1)
3,461,992

 
3,365,003

Commercial loans, held-for-investment
155,011

 
145,756

Cash and cash equivalents
87,003

 
164,144

Due from counterparties
65,107

 
57,604

Investment related receivable
37,123

 
38,717

Accrued interest receivable
70,076

 
66,044

Derivative assets, at fair value
20,504

 
24,178

Deferred securitization and financing costs
11,486

 
13,080

Other investments
114,553

 
106,498

Other assets
810

 
1,098

Total assets (1)
21,218,903

 
21,231,017

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
13,174,860

 
13,622,677

Secured loans
1,550,000

 
1,250,000

Asset-backed securities issued by securitization trusts (1)
3,006,047

 
2,929,820

Exchangeable senior notes
400,000

 
400,000

Derivative liabilities, at fair value
189,669

 
254,026

Dividends and distributions payable
61,770

 
61,757

Investment related payable
165,634

 
17,008

Accrued interest payable
36,069

 
29,670

Collateral held payable
6,500

 
14,890

Accounts payable and accrued expenses
3,741

 
2,439

Due to affiliate
9,918

 
9,880

Total liabilities (1)
18,604,208

 
18,592,167

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; 123,140,501 and 123,110,454 shares issued and outstanding, respectively
1,231

 
1,231

Additional paid in capital
2,532,555

 
2,532,130

Accumulated other comprehensive income
388,495

 
424,592

Retained earnings (distributions in excess of earnings)
(621,191
)
 
(632,854
)
Total stockholders’ equity
2,586,306

 
2,610,315

Non-controlling interest
28,389

 
28,535

Total equity
2,614,695

 
2,638,850

Total liabilities and equity
21,218,903

 
21,231,017


(1)
The condensed 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 Company. As of June 30, 2015 and December 31, 2014, total assets of the consolidated VIEs were $3,477,252 and $3,380,597, respectively, and total liabilities of the consolidated VIEs were $3,014,810 and $2,938,512, respectively.



 
8
 
Exhibit 99.1

Non-GAAP Financial Measures

In addition to the results presented in accordance with U.S. GAAP, this release contains the non-GAAP financial measures of 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 Company’s management uses these non-GAAP financial measures in its internal analysis of results and believes these measures are useful to investors for the reasons explained below. The most directly comparable U.S. GAAP measures are net income attributable to common stockholders (and by calculation basic earnings (loss) per common share), total interest income (and by calculation, yield), total interest expense (and by calculation, cost of funds), net interest income (and by calculation, net interest rate margin) and total debt-to-equity ratio.

These non-GAAP financial measures should not be considered as substitutes for any measures derived in accordance with U.S. GAAP and may not be comparable to other similarly titled measures of other companies. An analysis of any non-GAAP financial measure should be made in conjunction with results presented in accordance with U.S. GAAP. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate.

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 (excluding contractual net interest on interest rate swaps); unrealized (gain) loss on derivative instruments, net; realized and unrealized change in fair value of GSE CRT credit derivative income (loss), net; (gain) loss on foreign currency transactions, net; amortization of deferred swap losses from de-designation; and an adjustment attributable to non-controlling interest. The Company records changes in the valuation of its mortgage-backed securities and the valuation assigned to the debt host contract associated with its GSE CRTs in other comprehensive income on its condensed consolidated balance sheets. 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 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.



 
9
 
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
 
Six Months Ended
$ in thousands, except per share data
June 30, 2015
 
March 31, 2015
(As Restated)
 
June 30, 2014 
 (As Restated)
 
June 30, 2015
 
June 30, 2014 
 (As Restated)
Net income (loss) attributable to common stockholders
139,925

 
(17,440
)
 
(65,773
)
 
122,485

 
(132,532
)
Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on investments, net
(10,876
)
 
(2,172
)
 
20,197

 
(13,048
)
 
37,969

Realized (gain) loss on derivative instruments, net (excluding contractual net interest on interest rate swaps of $46,011, $45,608, $52,205, $91,619 and $103,646, respectively)
15,212

 
26,103

 
15,037

 
41,315

 
33,861

Unrealized (gain) loss on derivative instruments, net
(117,226
)
 
51,034

 
100,574

 
(66,192
)
 
181,621

Realized and unrealized change in fair value of GSE CRT credit derivative income (loss), net
6,591

 
(15,246
)
 
(27,990
)
 
(8,655
)
 
(41,951
)
(Gain) loss on foreign currency transactions, net
(996
)
 
1,525

 
—

 
529

 
—

Amortization of deferred swap losses on de-designation
16,313

 
19,145

 
21,532

 
35,458

 
42,828

Subtotal
(90,982
)
 
80,389

 
129,350

 
(10,593
)
 
254,328

Adjustment attributable to non-controlling interest
1,041

 
(921
)
 
(1,480
)
 
120

 
(2,900
)
Core earnings
49,984

 
62,028

 
62,097

 
112,012

 
118,896

Basic earnings (loss) per common share
1.14

 
(0.14
)
 
(0.53
)
 
0.99

 
(1.08
)
Core earnings per share attributable to common stockholders
0.41

 
0.50

 
0.50

 
0.91

 
0.97


Effective Interest Income/ 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 in realized and unrealized credit derivative income (loss), net. 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.
The Company calculates effective interest expense (and by calculation, effective cost of funds) as U.S. GAAP total interest expense adjusted for net interest paid on its interest rate swaps that is recorded in gain (loss) on derivative instruments and the reclassification of amortization of net deferred swap losses on de-designated interest rate swaps that is being amortized into interest expense over the remaining lives of the swaps. 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 subtracts amortization of net deferred losses on de-designated interest rate swaps 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 net interest paid on its interest rate swaps that is recorded in gain (loss) on derivative instruments, the reclassification of amortization of net deferred losses on de-designated interest rate swaps that is being amortized into repurchase agreements interest expense over the remaining lives of the swaps and GSE CRT embedded derivative coupon interest that is recorded in 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 our borrowing costs and operating performance.

 
10
 
Exhibit 99.1


The following table reconciles total interest income to effective interest income and yield to effective yield for the following periods:
 
Three Months Ended 
 June 30, 2015
 
Three Months ended 
March 31, 2015 
 (As Restated)
 
Three Months Ended 
 June 30, 2014 
 (As Restated)
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
160,836

 
3.12
%
 
167,754

 
3.29
%
 
170,727

 
3.41
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
6,157

 
0.12
%
 
5,913

 
0.12
%
 
3,773

 
0.08
%
Effective interest income
166,993

 
3.24
%
 
173,667

 
3.41
%
 
174,500

 
3.49
%
 
Six Months Ended June 30,
 
2015
 
2014 
 (As Restated)
$ in thousands
Reconciliation
 
Yield/Effective Yield
 
Reconciliation
 
Yield/Effective Yield
Total interest income
328,590

 
3.20
%
 
338,455

 
3.43
%
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
12,070

 
0.12
%
 
6,970

 
0.07
%
Effective interest income
340,660

 
3.32
%
 
345,425

 
3.50
%

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 
 June 30, 2015
 
Three Months ended 
March 31, 2015 
 (As Restated)
 
Three Months Ended 
 June 30, 2014 
 (As Restated)
$ 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
70,426

 
1.54
 %
 
72,279

 
1.60
 %
 
69,437

 
1.58
 %
Less: Amortization of net deferred swap losses on de-designation
(16,313
)
 
(0.36
)%
 
(19,145
)
 
(0.42
)%
 
(21,532
)
 
(0.49
)%
Add: Net interest paid - interest rate swaps
46,011

 
1.01
 %
 
45,608

 
1.01
 %
 
52,205

 
1.19
 %
Effective interest expense
100,124

 
2.19
 %
 
98,742

 
2.19
 %
 
100,110

 
2.28
 %

 
Six Months Ended June 30,
 
2015
 
2014 
 (As Restated)
$ in thousands
Reconciliation
 
Cost of Funds / Effective Cost of Funds
 
Reconciliation
 
Cost of Funds / Effective Cost of Funds
Total interest expense
142,705

 
1.57
 %
 
138,050

 
1.59
 %
Less: Amortization of net deferred swap losses on de-designation
(35,458
)
 
(0.39
)%
 
(42,828
)
 
(0.49
)%
Add: Net interest paid - interest rate swaps
91,619

 
1.01
 %
 
103,646

 
1.20
 %
Effective interest expense
198,866

 
2.19
 %
 
198,868

 
2.30
 %


 
11
 
Exhibit 99.1



The following tables reconcile net interest income to effective net interest income and net interest rate margin to effective interest rate margin for the following periods:
 
Three Months Ended 
 June 30, 2015
 
Three Months ended 
March 31, 2015 
 (As Restated)
 
Three Months Ended 
 June 30, 2014 
 (As Restated)
$ 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
90,410

 
1.58
 %
 
95,475

 
1.69
 %
 
101,290

 
1.83
 %
Add: Amortization of net deferred swap losses on de-designation
16,313

 
0.36
 %
 
19,145

 
0.42
 %
 
21,532

 
0.49
 %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
6,157

 
0.12
 %
 
5,913

 
0.12
 %
 
3,773

 
0.08
 %
Less: Net interest paid - interest rate swaps
(46,011
)
 
(1.01
)%
 
(45,608
)
 
(1.01
)%
 
(52,205
)
 
(1.19
)%
Effective net interest income
66,869

 
1.05
 %
 
74,925

 
1.22
 %
 
74,390

 
1.21
 %
 
Six Months Ended June 30,
 
2015
 
2014 
 (As Restated)
$ in thousands
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
 
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income
185,885

 
1.63
 %
 
200,405

 
1.84
 %
Add: Amortization of net deferred swap losses on de-designation
35,458

 
0.39
 %
 
42,828

 
0.49
 %
Add: GSE CRT embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net
12,070

 
0.12
 %
 
6,970

 
0.07
 %
Less: Net interest paid - interest rate swaps
(91,619
)
 
(1.01
)%
 
(103,646
)
 
(1.20
)%
Effective net interest income
141,794

 
1.13
 %
 
146,557

 
1.20
 %



 
12
 
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 total debt-to-equity ratio, and the Company's repurchase agreement debt-to-equity ratio as of June 30, 2015 and March 31, 2015. The mortgage REIT industry primarily uses repurchase agreements, which typically mature within one year, to finance investments. Improving the Company's balance sheet by diversifying the Company's liabilities away from repurchase agreements has been a focus of management over the past two years. Since the Company began using other longer-term means of financing its investments, such as exchangeable senior notes, asset-backed securities issued by consolidated securitization trusts, and secured loans, the Company has reduced its reliance on repurchase agreements. The Company's weighted average remaining maturity on borrowings has increased from 60 days as of December 31, 2013 to 354 days as of June 30, 2015. The Company believes presenting repurchase agreement debt-to-equity ratio, a non-GAAP financial measure of leverage, when considered together with U.S. GAAP financial measures, 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.
June 30, 2015
$ in thousands
Agency RMBS
Non-Agency RMBS (6)
GSE CRT(6)
CMBS (7)
Comm-
ercial Loans (7)
Consol-
idated
VIEs (4)(6)
Other (7)
Elimin-
ations (5)
Total
Investments
10,434,839

3,250,833

665,896

3,293,853

155,011

3,461,992

44,803

(450,183
)
20,857,044

Cash and cash
equivalents (1)
38,532

21,564

4,805

22,102

—

—

—

—

87,003

Derivative assets, at fair value (2)
18,350

1,140

—

—

969

—

45

—

20,504

Other assets
147,504

7,034

527

67,452

1,155

25,859

6,667

(1,846
)
254,352

Total assets
10,639,225

3,280,571

671,228

3,383,407

157,135

3,487,851

51,515

(452,029
)
21,218,903

 
 
 
 
 
 
 
 
 
 
Repurchase agreements
8,795,055

2,452,975

509,617

1,417,213

—

—

—

—

13,174,860

Secured loans (3)
324,756

—

—

1,225,244

—

—

—

—

1,550,000

Asset-backed securities issued by securitization trusts
—

—

—

—

—

3,456,230

—

(450,183
)
3,006,047

Exchangeable senior notes
—

—

—

—

—

—

400,000

—

400,000

Derivative liabilities, at fair value
188,306

—

—

—

1,363

—

—

—

189,669

Other liabilities
201,603

20,209

9,306

29,937

—

18,534

5,889

(1,846
)
283,632

Total liabilities
9,509,720

2,473,184

518,923

2,672,394

1,363

3,474,764

405,889

(452,029
)
18,604,208

 
 
 
 
 
 
 
 
 
 
Allocated equity
1,129,505

807,387

152,305

711,013

155,772

13,087

(354,374
)
—

2,614,695

Less equity associated with secured loans:
 
 
 
 
 
 
 
 
 
Collateral pledged
(387,366
)
—

—

(1,461,463
)
—

—

—

—

(1,848,829
)
Secured loans
324,756

—

—

1,225,244

—

—

—

—

1,550,000

Net equity (excluding secured loans)
1,066,895

807,387

152,305

474,794

NA

NA

NA

—

2,501,381

Total debt-to-equity ratio (8)
8.1

3.0

3.3

3.7

—

 NA

 NA

 NA

6.9

Repurchase agreement debt-to-equity ratio (9)
8.2

3.0

3.3

3.0

 NA

 NA

 NA

 NA

5.3

(1)
Cash and cash equivalents is allocated based on a percentage of equity for Agency RMBS, Non-Agency RMBS, GSE CRT and CMBS.
(2)
Derivative assets are allocated based on the hedging strategy for each asset class.
(3)
Secured loans are allocated based on amount of collateral pledged.
(4)
Represents VIE assets and liabilities before intercompany eliminations. VIEs are securitized entities with no substantive equity at risk.
(5)
Represents the Company's ownership of asset-backed securities and accrued interest eliminated upon consolidation.
(6)
Non-Agency RMBS, GSE CRT and Consolidated VIEs are considered residential credit.
(7)
CMBS, Commercial Loans and Investments in unconsolidated ventures of $44.8 million (which are included in Other), are considered commercial credit.
(8)
Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements, secured loans, asset-backed securities issued by securitization trusts and exchangeable senior notes) to allocated equity.
(9)
Repurchase agreement debt-to-equity ratio is calculated as the ratio of repurchase agreements to net equity (excluding secured loans).

 
13
 
Exhibit 99.1

March 31, 2015
$ in thousands
Agency RMBS
Non-Agency RMBS (6)
GSE CRT(6)
CMBS (7)
Comm-
ercial Loans (7)
Consol-
idated
VIEs (4)(6)
Other (7)
Elimin-
ations (5)
Total
Investments
10,274,261

3,407,153

661,767

3,456,892

146,211

3,597,147

41,243

(459,479
)
21,125,195

Cash and cash
equivalents (1)
65,714

36,666

9,606

45,039

—

—

—

—

157,025

Derivative assets, at fair value (2)
4,997

334

—

—

1,375

—

—

—

6,706

Other assets
157,301

11,255

592

67,705

1,014

15,897

7,281

(1,897
)
259,148

Total assets
10,502,273

3,455,408

671,965

3,569,636

148,600

3,613,044

48,524

(461,376
)
21,548,074

 
 
 
 
 
 
 
 
 
 
Repurchase agreements
8,778,225

2,613,114

486,990

1,454,752

—

—

—

—

13,333,081

Secured loans (3)
320,947

—

—

1,229,053

—

—

—

—

1,550,000

Asset-backed securities issued by securitization trusts
—

—

—

—

—

3,593,006

—

(459,479
)
3,133,527

Exchangeable senior notes
—

—

—

—

—

—

400,000

—

400,000

Derivative liabilities, at fair value
290,852

—

—

—

—

—

—

—

290,852

Other liabilities
66,858

20,239

5,041

30,919

—

10,951

889

(1,897
)
133,000

Total liabilities
9,456,882

2,633,353

492,031

2,714,724

—

3,603,957

400,889

(461,376
)
18,840,460

 
 
 
 
 
 
 
 
 
 
Allocated equity
1,045,391

822,055

179,934

854,912

148,600

9,087

(352,365
)
—

2,707,614

Less equity associated with secured loans:
 
 
 
 
 
 
 
 
 
Collateral pledged
(392,137
)
—

—

(1,501,668
)
—

—

—

—

(1,893,805
)
Secured loans
320,947

—

—

1,229,053

—

—

—

—

1,550,000

Net equity (excluding secured loans)
974,201

822,055

179,934

582,297

NA

NA

NA

—

2,558,487

Total debt-to-equity ratio (8)
8.7

3.2

2.7

3.1

—

 NA

 NA

 NA

6.8

Repurchase agreement debt-to-equity ratio (9)
9.0

3.2

2.7

2.5

 NA

 NA

 NA

 NA

5.2

(1)
Cash and cash equivalents is allocated based on a percentage of equity for Agency RMBS, Non-Agency RMBS, GSE CRT and CMBS.
(2)
Derivative assets are allocated based on the hedging strategy for each asset class.
(3)
Secured loans are allocated based on amount of collateral pledged.
(4)
Represents VIE assets and liabilities before intercompany eliminations. VIEs are securitized entities with no substantive equity at risk.
(5)
Represents our ownership of asset-backed securities and accrued interest eliminated upon consolidation.
(6)
Non-Agency RMBS, GSE CRT and Consolidated VIEs are considered residential credit.
(7)
CMBS, Commercial Loans and Investments in unconsolidated ventures of $41.2 million (which are included in Other), are considered commercial credit.
(8)
Debt-to-equity ratio is calculated as the ratio of total debt (sum of repurchase agreements, secured loans, asset-backed securities issued by securitization trusts and exchangeable senior notes) to allocated equity.
(9)
Repurchase agreement debt-to-equity ratio is calculated as the ratio of repurchase agreements to net equity (excluding secured loans).



 
14
 
Exhibit 99.1

Mortgage-Backed Securities and Credit Risk Transfer Securities

The following table summarizes certain characteristics of the Company’s MBS and GSE CRT portfolio as of June 30, 2015:
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
1,638,413

 
80,151

 
1,718,564

 
18,756

 
1,737,320

 
3.76
%
 
2.55
%
 
2.04
%
30 year fixed-rate
4,052,970

 
271,686

 
4,324,656

 
32,002

 
4,356,658

 
4.28
%
 
2.84
%
 
2.69
%
ARM*
461,173

 
5,560

 
466,733

 
6,863

 
473,596

 
2.74
%
 
2.57
%
 
1.99
%
Hybrid ARM
3,337,388

 
65,372

 
3,402,760

 
25,639

 
3,428,399

 
2.74
%
 
2.51
%
 
1.88
%
Total Agency pass-through
9,489,944

 
422,769

 
9,912,713

 
83,260

 
9,995,973

 
3.57
%
 
2.66
%
 
2.27
%
Agency-CMO(4)
2,063,207

 
(1,630,609
)
 
432,598

 
6,268

 
438,866

 
2.25
%
 
4.49
%
 
3.15
%
Non-Agency RMBS(5)(6)
3,261,947

 
(548,656
)
 
2,713,291

 
87,359

 
2,800,650

 
3.44
%
 
3.84
%
 
4.39
%
GSE CRT(7)
643,000

 
24,176

 
667,176

 
(1,280
)
 
665,896

 
1.01
%
 
0.50
%
 
0.51
%
CMBS(8)
3,422,375

 
(231,765
)
 
3,190,610

 
103,243

 
3,293,853

 
4.43
%
 
4.43
%
 
4.40
%
Total
18,880,473

 
(1,964,085
)
 
16,916,388

 
278,850

 
17,195,238

 
3.43
%
 
3.10
%
 
2.98
%

* Adjustable-rate mortgage ("ARM")
 
(1)
Net weighted average coupon (“WAC”) as of June 30, 2015 is presented net of servicing and other fees.
(2)
Period-end weighted average yield is based on amortized cost as of June 30, 2015 and incorporates future prepayment and loss assumptions but excludes changes in anticipated interest rates.
(3)
Quarterly weighted average portfolio yield for the period was calculated by dividing interest income, including amortization of premiums and discounts, by the Company's average of the amortized cost of the investments. All yields are annualized.
(4)
Agency collateralized mortgage obligation ("Agency-CMO") includes Agency MBS IOs which represent 33.0% of the balance based on fair value.
(5)
Non-Agency RMBS held by the Company is 52.3% variable rate, 40.6% fixed rate, and 7.1% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $328.1 million is non-accretable.
(7)
GSE CRT weighted average coupon and weighted average yield excludes embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net.
(8)
CMBS includes commercial real estate mezzanine loan pass-through certificates which represent 1.3% of the balance based on fair value.

Constant Prepayment Rates ("CPR")
The CPR of the Company's portfolio impacts the amount of premium and discount on the purchase of securities that is recognized into income. The Company's Agency, non-Agency RMBS and GSE CRT had a weighted average CPR of 14.4 and 11.4 for the three months ended June 30, 2015 and March 31, 2015, respectively. The table below shows the three month CPR for the Company's RMBS compared to bonds with similar characteristics (“Cohorts”):
 
 
June 30, 2015
 
March 31, 2015
 
Company
 
Cohorts
 
Company
 
Cohorts
15 year Agency RMBS
10.7

 
15.1

 
9.4

 
12.7

30 year Agency RMBS
13.9

 
17.1

 
11.1

 
13.2

Agency Hybrid ARM RMBS
17.3

 
NA

 
14.2

 
NA

Non-Agency RMBS
14.0

 
NA

 
10.3

 
NA

GSE CRT
13.9

 
NA

 
9.5

 
NA

Weighted average CPR
14.4

 
NA

 
11.4

 
NA




 
15
 
Exhibit 99.1


Borrowings
The Company has entered into repurchase agreements, secured loans 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 June 30, 2015 and December 31, 2014:
 
$ in thousands
June 30, 2015
 
December 31, 2014
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Weighted
Average
Remaining
Maturity
(Days)
 
Amount
Outstanding
 
Weighted
Average
Interest
Rate
 
Weighted
Average
Remaining
Maturity
(Days)
Repurchase Agreements:
 
 
 
 
 
 
 
 
 
 
 
Agency RMBS
8,795,055

 
0.37
%
 
17

 
9,018,818

 
0.35
%
 
18

Non-Agency RMBS
2,452,975

 
1.54
%
 
43

 
2,676,626

 
1.51
%
 
36

GSE CRT
509,617

 
1.69
%
 
31

 
468,782

 
1.55
%
 
27

CMBS
1,417,213

 
1.34
%
 
27

 
1,458,451

 
1.32
%
 
26

Secured Loans
1,550,000

 
0.40
%
 
2,980

 
1,250,000

 
0.37
%
 
3,472

Exchangeable Senior Notes
400,000

 
5.00
%
 
989

 
400,000

 
5.00
%
 
1,170

Total
15,124,860

 
0.82
%
 
354

 
15,272,677

 
0.81
%
 
335


The Company finances its residential loans held-for-investment through asset-backed securities issued by securitization trusts.



 
16
 
Exhibit 99.1

Interest Rate Swaps
As of June 30, 2015, the Company had the following interest rate swaps outstanding:
$ in thousands
Counterparty
 
 
 
 
Notional
 
Maturity Date
 
Fixed Interest Rate
in Contract
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
%
ING Capital Markets LLC
 
 
 
 
300,000

 
5/5/2018
 
0.79
%
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
%
Citibank, N.A. CME Clearing House
 
(1
)
 
 
300,000

 
2/5/2021
 
2.50
%
The Royal Bank of Scotland Plc CME Clearing House
 
(1
)
 
 
300,000

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

 
200,000

 
3/15/2021
 
3.14
%
JPMorgan Chase Bank, N.A.
 
(2
)

 
500,000

 
5/24/2021
 
2.25
%
Citibank, N.A.
 
 
 
 
200,000

 
5/25/2021
 
2.83
%
HSBC Bank USA, National Association
 
(3
)
 
 
500,000

 
6/24/2021
 
2.44
%
HSBC Bank USA, National Association
 
 
 
 
550,000

 
2/24/2022
 
2.45
%
Deutsche Bank AG
 
 
 
 
1,000,000

 
6/9/2022
 
2.21
%
HSBC Bank USA, National Association
 



 
250,000

 
6/5/2023
 
1.91
%
The Royal Bank of Scotland Plc
 
 

 
500,000

 
8/15/2023
 
1.98
%
Goldman Sachs Bank USA CME Clearing House
 
 
 
 
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
%
Morgan Stanley Capital Services, LLC
 
 
 
 
100,000

 
4/2/2025
 
2.04
%
Total
 
 
 
 
11,450,000

 
 
 
2.12
%
(1)
Forward start date of February 2016
(2)
Forward start date of May 2016
(3)
Forward start date of June 2016




 
17
 
Exhibit 99.1

Average Balances
The table below presents certain information for the Company's portfolio for the three and six months ended June 30, 2015 and 2014.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
$ in thousands
2015
 
2014 
 (As Restated)
 
2015
 
2014 
 (As Restated)
Average Balances*:
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
1,747,623

 
1,490,857

 
1,748,306

 
1,544,072

30 year fixed-rate, at amortized cost
4,400,782

 
6,277,003

 
4,490,257

 
6,501,011

ARM, at amortized cost
446,754

 
526,816

 
453,651

 
407,650

Hybrid ARM, at amortized cost
3,270,461

 
2,441,988

 
3,069,675

 
2,154,029

MBS-CMO, at amortized cost
438,549

 
505,949

 
442,374

 
490,979

Non-Agency RMBS, at amortized cost
2,774,992

 
3,241,721

 
2,833,617

 
3,382,454

GSE CRT, at amortized cost
662,188

 
418,606

 
656,298

 
366,900

CMBS, at amortized cost
3,195,123

 
2,788,361

 
3,233,156

 
2,677,553

Residential loans, at amortized cost
3,480,101

 
2,240,066

 
3,422,035

 
2,114,219

Commercial loans, at amortized cost
158,312

 
94,541

 
152,231

 
86,653

Average MBS and Loans portfolio
20,574,885

 
20,025,908

 
20,501,600

 
19,725,520

Average Portfolio Yields (1):
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
15 year fixed-rate
2.04
%
 
2.57
%
 
2.13
%
 
2.69
%
30 year fixed-rate
2.69
%
 
3.03
%
 
2.85
%
 
3.09
%
ARM
1.99
%
 
2.29
%
 
2.35
%
 
2.31
%
Hybrid ARM
1.88
%
 
2.23
%
 
2.06
%
 
2.28
%
MBS - CMO
3.15
%
 
3.42
%
 
3.44
%
 
3.77
%
Non-Agency RMBS
4.39
%
 
4.70
%
 
4.37
%
 
4.44
%
GSE CRT (2)
0.51
%
 
0.48
%
 
0.50
%
 
0.52
%
CMBS
4.40
%
 
4.54
%
 
4.37
%
 
4.52
%
Residential loans
3.48
%
 
3.66
%
 
3.49
%
 
3.60
%
Commercial loans
8.55
%
 
8.72
%
 
8.54
%
 
8.49
%
Average MBS and Loans portfolio
3.12
%
 
3.41
%
 
3.20
%
 
3.43
%
Average Borrowings*:
 
 
 
 
 
 
 
Agency RMBS (3)
9,166,962

 
10,040,134

 
9,099,236

 
9,865,448

Non-Agency RMBS
2,534,973

 
2,790,149

 
2,584,839

 
2,895,918

GSE CRT
495,605

 
307,237

 
475,057

 
261,052

CMBS (3)
2,663,097

 
2,033,655

 
2,664,131

 
2,032,975

Exchangeable senior notes
400,000

 
400,000

 
400,000

 
400,000

Asset-backed securities issued by securitization trusts
3,023,497

 
1,975,573

 
2,974,056

 
1,870,367

Total borrowed funds
18,284,134

 
17,546,748

 
18,197,319

 
17,325,760

Maximum borrowings during the period (4)
18,364,746

 
17,765,146

 
18,416,608

 
17,765,146


 
18
 
Exhibit 99.1

Average Cost of Funds (5):
 
 
 
 
 
 
 
Agency RMBS (3)
0.35
%
 
0.32
%
 
0.35
%
 
0.34
%
Non-Agency RMBS
1.57
%
 
1.55
%
 
1.54
%
 
1.53
%
GSE CRT
1.63
%
 
1.50
%
 
1.66
%
 
1.47
%
CMBS (3)
0.92
%
 
1.24
%
 
0.91
%
 
1.31
%
Exchangeable senior notes
5.61
%
 
5.61
%
 
5.61
%
 
5.61
%
Asset-backed securities issued by securitization trusts
2.95
%
 
3.20
%
 
2.97
%
 
3.18
%
Unhedged cost of funds (6)
1.18
%
 
1.09
%
 
1.18
%
 
1.10
%
Hedged / Effective cost of funds (non-GAAP measure)
2.19
%
 
2.28
%
 
2.19
%
 
2.30
%
Average Equity (7):
2,458,210

 
2,470,933

 
2,455,590

 
2,403,467

Average debt/equity ratio (average during period)
7.44x

 
7.10x

 
7.41x

 
7.21x

Debt/equity ratio (as of period end)
6.93x

 
6.82x

 
6.93x

 
6.82x

*
Average amounts for each period are based on weighted month-end balances; all percentages are annualized. For the three and six months ended June 30, 2015, 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 Company's average of the amortized cost of the investments. All yields are annualized.
(2)
GSE CRT average portfolio yield excludes embedded derivative coupon interest recorded as realized and unrealized credit derivative income (loss), net.
(3)
Agency RMBS and CMBS average borrowing and cost of funds include borrowings under repurchase agreements and secured loans.
(4)
Amount represents the maximum borrowings at month-end during each of the respective periods.
(5)
Average cost of funds is calculated by dividing annualized interest expense by the Company's average borrowings.
(6)
Excludes reclassification of amortization of net deferred losses on de-designated interest rate swaps to repurchase agreements interest expense.
(7)
Average equity is calculated based on a weighted balance basis.






 
19
 

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