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Form 8-K Invesco Mortgage Capital For: Feb 23

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February 23, 2015 4:20 PM EST


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): February 23, 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 February 23, 2015, Invesco Mortgage Capital Inc. (the “registrant”) issued a press release announcing its financial results for the quarter ended December 31, 2014 (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 February 23, 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: February 23, 2015
 





Exhibit Index
 
 
 
 
Exhibit No.
 
Description
99.1
 
Press Release, dated February 23, 2015, issued by Invesco Mortgage Capital Inc.



Exhibit 99.1

Press Release
For immediate release
Invesco Mortgage Capital Inc. Reports Fourth Quarter 2014 Financial Results
Generated core earnings* of $59.7 million, or $0.49 per common share and delivered 2014 economic return** on book value of 15.6%
Atlanta – February 23, 2015 -- Invesco Mortgage Capital Inc. (NYSE: IVR) (the "Company") today announced financial results for the quarter ended December 31, 2014, including core earnings* of $0.49 per common share. The strong quarterly results were driven by both our asset and liability strategy. Higher earning assets had a positive effect on interest income and lower financing costs increased our effective interest rate margin* to 1.35% for the fourth quarter vs. 1.17% in the third quarter of 2014.

"Our value proposition is to deliver attractive investment income and book value stability to IVR stockholders," said Richard King, President and CEO. "During the year ended December 31, 2014, IVR declared $1.95 per common share of dividends and grew book value from $17.97 to $18.82 per share for a 15.6% economic return**. We also delivered on repositioning our portfolio to be less interest rate sensitive and to create greater value for IVR stockholders. The portfolio repositioning will align our future returns more closely to the strength of residential and commercial real estate fundamentals and reduce interest rate risk. We increased the percentage of equity allocated to commercial credit to 34% vs. 25% at December 31, 2013. Management believes the Company is positioned to deliver another year of attractive economic return in 2015."
 
Highlights
 
Ÿ
Economic return** for the year ended 2014 of 15.6% and 0.6% for Q4
 
Ÿ
Q4 core earnings* of $59.7 million or $0.49 per common share and common stock dividend of $0.45 per share
 
Ÿ
Q4 U.S. GAAP net loss attributable to common shareholders of $79.0 million or ($0.64) per share reflects change in valuation of interest rate hedges
 
Ÿ
Book value per common share at year end 2014 of $18.82 vs. $17.97 at year end 2013 and $19.16 at Q3 2014
 
Ÿ
Comprehensive income attributable to common shareholders of $14.7 million or $0.12 per common share for Q4 and $344.7 million or $2.80 per common share for the year ended 2014
 
Ÿ
Portfolio equity allocation positioned to benefit from improving real estate fundamentals: 34% to commercial credit, 34% to residential credit and 32% to Agency MBS as of December 31, 2014

* Core earnings (and by calculation, core earnings per common share), 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 (and by calculation, basic earnings (loss) per common share), 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.

**Economic return for the year ended December 31, 2014 is defined as the change in book value per diluted common share from December 31, 2013 to December 31, 2014 of $0.85; plus dividends declared of $1.95 per common share; divided by the December 31, 2013 book value per diluted common share of $17.97. Economic return for the quarter ended December 31, 2014 is defined as the change in book value per diluted common share from September 30, 2014 to December 31, 2014 of ($0.34); plus dividends declared of $0.45 per common share; divided by the September 30, 2014 book value per diluted common share of $19.16.

1

Exhibit 99.1

Key performance indicators for the quarters ended December 31, 2014 and September 30, 2014 are summarized in the table below.
($ in millions, except share amounts)
Q4 ‘14
Q3 ‘14
 
(unaudited)
(unaudited)
Average earning assets (at amortized cost)

$20,282.7


$19,599.3

Average borrowed funds
17,985.4

17,350.8

Average equity

$2,407.4


$2,449.6

 
 
 
Interest income

$179.0


$169.4

Interest expense
73.6

70.3

Net interest income
105.4

99.1

Total other income (loss)
(162.8
)
(51.6
)
Operating expenses
14.0

13.3

Net income (loss)
(71.2
)
34.4

Net income (loss) attributable to non-controlling interest
(0.8
)
0.4

Dividends to preferred shareholders
8.6

3.4

Net income (loss) attributable to common shareholders

($79.0
)

$30.7

 
 
 
Average portfolio yield
3.53
%
3.46
%
Cost of funds
1.64
%
1.62
%
Total debt-to-equity ratio
6.9x

6.7
x
Book value per common share (diluted)

$18.82


$19.16

Earnings (loss) per common share (basic)

($0.64
)

$0.25

Dividends declared per common share

$0.45


$0.50

Dividends declared per preferred share on Series A Preferred Stock

$0.4844


$0.4844

Dividends declared per preferred share on Series B Preferred Stock

$1.0549

—

 
 
 
Non-GAAP Financial Measures*:
 
 
Core earnings

$59.7


$54.3

Core earnings per common share

$0.49


$0.44

Effective interest expense

$98.2


$99.5

Effective cost of funds
2.18
%
2.29
%
Effective net interest income

$80.9


$69.9

Effective interest rate margin
1.35
%
1.17
%
Repurchase agreement debt-to-equity ratio
5.4x

5.2
x

* Core earnings (and by calculation, core earnings per common share), 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 (and by calculation, basic earnings (loss) per common share), 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.

Financial Summary

During the fourth quarter of 2014, the Company generated $59.7 million in core earnings, an increase of $5.4 million over the third quarter of 2014. Net loss attributable to common shareholders for the fourth quarter of 2014 was $79.0 million, compared to net income attributable to common shareholders of $30.7 million for the third quarter of 2014. The fourth quarter 2014 net loss attributable to common shareholders was primarily due to a $164.6 million decline in the valuation of interest rate swaps during the quarter. Fourth quarter 2014 book value per common share was $18.82 reflecting modestly wider credit spreads on commercial mortgage-backed securities ("CMBS") and lower prices on credit risk transfer securities issued by government-sponsored enterprises ("GSE CRTs").

During the quarter the Company added one residential loan securitization, several securities backed by re-performing sub-prime residential loans, and additional GSE CRTs to its investment portfolio. As of December 31, 2014, the Company increased its portfolio of residential and commercial loans held for investment to $3.5 billion, an increase of $262.6 million from September 30, 2014. The Company’s mortgage-backed securities ("MBS") portfolio totaled $17.2 billion, a decrease of $48.1 million from September 30, 2014. For the quarter ended December 31, 2014, average earning assets were $20.3 billion, representing an

2

Exhibit 99.1

increase of $683.4 million from September 30, 2014. The portfolio generated interest income of $179.0 million during the three months ended December 31, 2014, which reflects an increase of $9.6 million from the three months ended September 30, 2014. The increase in interest income was the result of higher average earning assets during the quarter.

For the quarter ended December 31, 2014, the Company had average borrowed funds of approximately $18.0 billion and effective interest expense of $98.2 million, compared to $17.4 billion and $99.5 million, respectively, for the third quarter of 2014. The Company's effective cost of funds was 2.18% and 2.29% for the fourth quarter and third quarter of 2014, respectively. The decrease in effective interest expense and effective cost of funds was primarily the result of lower interest rate swap notional balances. The Company terminated shorter swaps that we believe offered minimal protection against interest rate movements. Given our shift to credit based assets and reduction in the interest rate sensitivity of our investment portfolio, the Company also terminated certain longer term swaps to adjust our overall interest rate duration.

Operating expenses for the fourth quarter of 2014 totaled approximately $14.0 million, compared to $13.3 million for the third quarter of 2014. The ratio of operating expenses to average equity for the fourth quarter was 2.32%, which was an increase of 15 basis points from the third quarter of 2014. The increase in operating expenses was primarily due to organization and direct operating expenses associated with new investments in consolidated residential loan securitizations.

In the fourth quarter of 2014, the Company declared the following dividends: a common stock dividend of $0.45 per share paid on January 27, 2015; a Series A preferred stock dividend of $0.4844 per share paid on January 26, 2015; and a Series B preferred stock dividend of $0.4844 per share that will be paid on March 27, 2015. The Company also declared a dividend on its Series B preferred stock of $0.5705 per share that was paid on December 29, 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.

3

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, February 24, 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 March 10, 2015 by calling:

800-839-1174 (North America) or 203-369-3029 (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 statements with respect to the Company's 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 the Company's expectations. The Company cautions investors not to rely unduly on any forward-looking statements and urges 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 the Company's 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 the Company makes, or that are attributable to the Company, are expressly qualified by this cautionary notice. The Company expressly disclaims 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


4

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 share amounts
2014
 
2013
 
2014
 
2013
Interest Income
 
 
 
 
 
 
 
Mortgage-backed securities
148,655

 
160,168

 
596,357

 
646,787

Residential loans
27,185

 
13,679

 
88,073

 
34,122

Commercial loans
3,179

 
1,019

 
9,508

 
1,451

Total interest income
179,019

 
174,866

 
693,938

 
682,360

Interest Expense
 
 
 
 
 
 
 
Repurchase agreements
46,050

 
79,061

 
188,699

 
287,547

Secured loans
1,177

 
—

 
2,576

 
—

Exchangeable senior notes
5,621

 
5,620

 
22,461

 
18,023

Asset-backed securities
20,738

 
10,960

 
68,159

 
26,682

Total interest expense
73,586

 
95,641

 
281,895

 
332,252

Net interest income
105,433

 
79,225

 
412,043

 
350,108

(Reduction in) provision for loan losses
(90
)
 
134

 
(142
)
 
884

Net interest income after provision for loan losses
105,523

 
79,091

 
412,185

 
349,224

Other income (loss)
 
 
 
 
 
 
 
Gain (loss) on sale of investments, net
1,006

 
(142,530
)
 
(79,430
)
 
(199,449
)
Equity in earnings of unconsolidated ventures
1,306

 
176

 
6,786

 
5,345

Gain (loss) on derivative instruments, net
(164,637
)
 
(4,421
)
 
(487,469
)
 
40,003

Realized and unrealized credit default swap income
225

 
299

 
1,093

 
1,127

Other investment income (loss), net
(687
)
 
—

 
(2,045
)
 
—

Total other income (loss)
(162,787
)
 
(146,476
)
 
(561,065
)
 
(152,974
)
Expenses
 
 
 
 
 
 
 
Management fee — related party
9,723

 
10,533

 
37,599

 
42,639

General and administrative
4,253

 
3,660

 
15,267

 
10,505

Total expenses
13,976

 
14,193

 
52,866

 
53,144

Net income (loss)
(71,240
)
 
(81,578
)
 
(201,746
)
 
143,106

Net income (loss) attributable to non-controlling interest
(816
)
 
(906
)
 
(2,301
)
 
1,486

Net income (loss) attributable to Invesco Mortgage Capital Inc.
(70,424
)
 
(80,672
)
 
(199,445
)
 
141,620

Dividends to preferred stockholders
9,240

 
2,712

 
17,378

 
10,851

Undeclared cumulative dividends to preferred shareholders
(661
)
 
—

 
—

 
—

Net income (loss) attributable to common stockholders
(79,003
)
 
(83,384
)
 
(216,823
)
 
130,769

Earnings per share:


 
 
 
 
 
 
Net income (loss) attributable to common stockholders
 
 
 
 
 
 
 
Basic
(0.64
)
 
(0.63
)
 
(1.76
)
 
0.99

Diluted
(0.64
)
 
(0.63
)
 
(1.76
)
 
0.99



5

Exhibit 99.1



INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three Months Ended 
 December 31,
 
Years Ended 
 December 31,
In thousands
2014
 
2013
 
2014
 
2013
Net income (loss)
(71,240
)
 
(81,578
)
 
(201,746
)
 
143,106

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on mortgage-backed securities
74,692

 
(111,529
)
 
403,435

 
(874,545
)
Reclassification of unrealized loss on sale of mortgage-backed securities to gain (loss) on sales of investments, net
(1,006
)
 
142,530

 
79,430

 
199,449

Unrealized gain (loss) on derivative instruments
—

 
79,744

 
—

 
263,135

Reclassification of unrealized loss on derivative instruments to gain (loss) on derivatives, net
—

 
49,463

 
—

 
166,016

Reclassification of amortization of repurchase agreements interest expense to repurchase agreements interest expense
21,121

 
—

 
85,176

 
—

Total Other comprehensive income (loss)
94,807

 
160,208

 
568,041

 
(245,945
)
Comprehensive income (loss)
23,567

 
78,630

 
366,295

 
(102,839
)
Less: Comprehensive (income) loss attributable to non-controlling interest
(269
)
 
(827
)
 
(4,188
)
 
1,029

Less: Dividends to preferred shareholders
(9,240
)
 
(2,712
)
 
(17,378
)
 
(10,851
)
Less: Undeclared cumulative dividends to preferred shareholders
661

 
—

 
—

 
—

Comprehensive income (loss) attributable to common shareholders
14,719

 
75,091

 
344,729

 
(112,661
)


6

Exhibit 99.1

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


 
As of
In thousands except share amounts
December 31,
2014
 
December 31,
2013
ASSETS
 
 
 
Mortgage-backed securities, at fair value
17,248,895

 
17,348,657

Residential loans, held-for-investment (1)
3,365,003

 
1,810,262

Commercial loans, held-for-investment
145,756

 
64,599

Cash and cash equivalents
164,144

 
210,612

Due from counterparties
57,604

 
1,500

Investment related receivable
38,717

 
515,404

Accrued interest receivable
66,044

 
68,246

Derivative assets, at fair value
24,178

 
262,059

Deferred securitization and financing costs
13,080

 
13,894

Other investments
106,498

 
54,403

Other assets
1,098

 
1,343

Total assets(1)
21,231,017

 
20,350,979

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Repurchase agreements
13,622,677

 
15,451,675

Secured loans
1,250,000

 
—

Asset-backed securities issued by securitization trusts (1)
2,929,820

 
1,643,741

Exchangeable senior notes
400,000

 
400,000

Derivative liabilities, at fair value
254,026

 
263,204

Dividends and distributions payable
61,757

 
66,087

Investment related payable
17,008

 
28,842

Accrued interest payable
29,670

 
26,492

Collateral held payable
14,890

 
52,698

Accounts payable and accrued expenses
2,439

 
4,304

Due to affiliate
9,880

 
10,701

Total liabilities(1)
18,592,167

 
17,947,744

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

 
—

Common Stock, par value $0.01 per share; 450,000,000 shares authorized; 123,110,454 and 124,510,246 shares issued and outstanding, respectively
1,231

 
1,245

Additional paid in capital
2,532,130

 
2,552,464

Accumulated other comprehensive income (loss)
404,559

 
(156,993
)
Retained earnings (distributions in excess of earnings)
(612,821
)
 
(155,957
)
Total stockholders’ equity
2,610,315

 
2,376,115

Non-controlling interest
28,535

 
27,120

Total equity
2,638,850

 
2,403,235

Total liabilities and equity
21,231,017

 
20,350,979

(1)
The 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 December 31, 2014 and December 31, 2013, total assets of the consolidated VIEs were $3,380,597 and $1,819,295, respectively, and total liabilities of the consolidated VIEs were $2,938,512 and $1,648,400, respectively.


7

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 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 shareholders (and by calculation basic earnings (loss) per common share), 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 to the non-GAAP measures if deemed appropriate.

Core Earnings

The Company calculates core earnings as U.S. GAAP net income attributable to common shareholders adjusted for (gain) loss on sale of investments, net; realized (gain) loss on derivative instruments, net (excluding contractual net interest on interest rate swaps); unrealized (gain) loss on derivative instruments, net; (gain) loss on foreign currency transactions; amortization of deferred swap losses from de-designation; and an adjustment attributable to non-controlling interest.

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. The Company records changes in the valuation of its mortgage-backed securities in other comprehensive income on its consolidated balance sheets. Through December 31, 2013 the Company also recorded changes in the valuation of its interest rate swaps in other comprehensive income. Effective December 31, 2013, the Company voluntarily discontinued hedge accounting for its interest rate swaps. As a result of discontinuing hedge accounting, changes in the fair value value of interest rate swaps are recorded in gain (loss) on derivative instruments, net in the consolidated statement of operations, along with the change in fair value of the Company's other derivative instruments.

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.






8

Exhibit 99.1

The table below provides a reconciliation of U.S. GAAP net income attributable to common shareholders to core earnings for the following periods:
 
Three Months Ended
 
Years Ended
$ in thousands, except per share data
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
December 31, 2014
 
December 31, 2013
Net income (loss) attributable to common shareholders
(79,003
)
 
30,672

 
(83,384
)
 
(216,823
)
 
130,769

Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on sale of investments, net
(1,006
)
 
47,952

 
142,530

 
79,430

 
199,449

Realized (gain) loss on derivative instruments (excluding contractual net interest on interest rate swaps of $45,691, $50,446, $0, $199,783 and $0, respectively)
37,310

 
1,016

 
12,308

 
72,187

 
(53,926
)
Unrealized (gain) loss on derivative instruments
81,637

 
(47,758
)
 
(7,887
)
 
215,499

 
13,923

Loss on foreign currency transactions
1,266

 
1,479

 
—

 
2,746

 
—

Amortization of deferred swap losses from de-designation
21,121

 
21,227

 
—

 
85,176

 
—

Subtotal
140,328

 
23,916

 
146,951

 
455,038

 
159,446

Adjustment attributable to non-controlling interest
(1,606
)
 
(274
)
 
(1,608
)
 
(5,198
)
 
(1,740
)
Core earnings
59,719

 
54,314

 
61,959

 
233,017

 
288,475

Basic earnings (loss) per common share
(0.64
)
 
0.25

 
(0.63
)
 
(1.76
)
 
0.99

Core earnings per share attributable to common shareholders
0.49

 
0.44

 
0.46

 
1.89

 
2.17



Effective Interest Expense/Effective Cost of Funds/Effective Net Interest Income/Effective Interest Rate Margin

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 and amortization of deferred swap losses from de-designation that is being amortized into interest expense over the remaining lives of the swaps. 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 and amortization of deferred swap losses from de-designation that is being amortized into interest expense over the remaining lives of the swaps. Although the Company elected to discontinue hedge accounting for its interest rate swaps as of January 1, 2014, such derivative instruments are viewed by the Company as an economic hedge against increases in future market interest rates on its liabilities.

The Company believes the presentation of effective interest expense, effective costs of funds, effective net interest income and effective interest rate margin measures, when considered together with U.S. GAAP financial measures, provide information that is useful to investors in understanding the Company's borrowing costs and investment performance.


9

Exhibit 99.1

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 December 31, 2014
 
Three Months Ended   September 30, 2014
 
Three Months Ended December, 2013
$ 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
73,586

 
1.64
 %
 
70,259

 
1.62
 %
 
95,641

 
2.14
%
Less: Amortization of deferred swap losses from de-designation
(21,121
)
 
(0.48
)%
 
(21,227
)
 
(0.49
)%
 
—

 
—
%
Add: Net interest paid - interest rate swaps
45,691

 
1.02
 %
 
50,446

 
1.16
 %
 
—

 
—
%
Effective interest expense
98,156

 
2.18
 %
 
99,478

 
2.29
 %
 
95,641

 
2.14
%

 
Year Ended 
 December 31, 2014
 
Year Ended 
 December 31, 2013
$ in thousands
Reconciliation
 
Cost of Funds / Effective Cost of Funds
 
Reconciliation
 
Cost of Funds / Effective Cost of Funds
Total interest expense
281,895

 
1.61
 %
 
332,252

 
1.84
%
Less: Amortization of deferred swap losses from de-designation
(85,176
)
 
(0.48
)%
 
—

 
—
%
Add: Net interest paid - interest rate swaps
199,783

 
1.14
 %
 
—

 
—
%
Effective interest expense
396,502

 
2.27
 %
 
332,252

 
1.84
%

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 December 31, 2014
 
Three Months Ended  September 30, 2014
 
Three Months Ended December 31, 2013
$ 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
105,433

 
1.89
 %
 
99,146

 
1.84
 %
 
79,225

 
1.35
%
Add: Amortization of deferred swap losses from de-designation
21,121

 
0.48
 %
 
21,227

 
0.49
 %
 
—

 
—
%
Less: Net interest paid - interest rate swaps
(45,691
)
 
(1.02
)%
 
(50,446
)
 
(1.16
)%
 
—

 
—
%
Effective net interest income
80,863

 
1.35
 %
 
69,927

 
1.17
 %
 
79,225

 
1.35
%

 
Year Ended 
 December 31, 2014
 
Year Ended 
 December 31, 2013
$ in thousands
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
 
Reconciliation
 
Net Interest Rate Margin / Effective Interest Rate Margin
Net interest income
412,043

 
1.89
 %
 
350,108

 
1.48
%
Add: Amortization of deferred swap losses from de-designation
85,176

 
0.48
 %
 
—

 
—
%
Less: Net interest paid - interest rate swaps
(199,783
)
 
(1.14
)%
 
—

 
—
%
Effective net interest income
297,436

 
1.23
 %
 
350,108

 
1.48
%

10

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 December 31, 2014, September 30, 2014 and December 31, 2013. 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 securitization trusts, and secured loans, the Company has reduced its reliance on repurchase agreements. 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 other mortgage REITs who almost exclusively borrow using repurchase agreements which are short-term and subject to refinancing risk.
December 31, 2014
$ in thousands
Agency
Non-Agency (6)
GSE CRT(6)
CMBS (7)
Comm-
ercial Loans (7)
Consol-
idated
VIEs (4)(6)
Other (7)
Elimin-
ations (5)
Total
Investments
10,091,989

3,494,181

625,424

3,469,835

145,756

3,365,003

43,998

(432,534
)
20,803,652

Cash and cash
equivalents (1)
64,603

41,578

10,154

47,809

—

—

—

—

164,144

Derivative assets, at fair value (2)
23,183

396

—

—

599

—

—

—

24,178

Other assets
111,817

13,742

15,639

75,209

1,030

15,591

7,888

(1,873
)
239,043

Total assets
10,291,592

3,549,897

651,217

3,592,853

147,385

3,380,594

51,886

(434,407
)
21,231,017

 
 
 
 
 
 
 
 
 
 
Repurchase agreements
9,018,818

2,676,626

468,782

1,458,451

—

—

—

—

13,622,677

Secured loans (3)
—

—

—

1,250,000

—

—

—

—

1,250,000

Asset-backed securities issued by securitization trusts
—

—

—

—

—

3,362,354

—

(432,534
)
2,929,820

Exchangeable senior notes
—

—

—

—

—

—

400,000

—

400,000

Derivative liabilities, at fair value
254,026

—

—

—

—

—

—

—

254,026

Other liabilities
56,894

21,351

5,233

37,589

—

10,563

5,887

(1,873
)
135,644

Total liabilities
9,329,738

2,697,977

474,015

2,746,040

—

3,372,917

405,887

(434,407
)
18,592,167

 
 
 
 
 
 
 
 
 
 
Allocated equity
961,854

851,920

177,202

846,813

147,385

7,677

(354,001
)
—

2,638,850

Less equity associated with secured loans:
 
 
 
 
 
 
 
 
 
Collateral pledged


—

—

(1,550,270
)
—

—

—

—

(1,550,270
)
Secured loans


—

—

1,250,000

—

—

—

—

1,250,000

Net equity (excluding secured loans)
961,854

851,920

177,202

546,543

NA

NA

NA

—

2,537,519

Total debt-to-equity ratio
9.4

3.1

2.6

3.2

—

NA

NA

NA

6.9

Repurchase agreement debt-to-equity ratio
9.4

3.1

2.6

2.7

NA

NA

NA

NA

5.4

(1)
Cash and cash equivalents is allocated based on a percentage of equity for Agency, Non-Agency, 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, GSE CRT and Consolidated VIEs are considered residential credit.
(7)
CMBS, Commercial Loans and Investments in unconsolidated ventures of $44.0 million (which are included in Other), are considered commercial credit.


11

Exhibit 99.1

September 30, 2014
$ in thousands
Agency
Non-Agency (6)
GSE CRT (6)
CMBS (7)
Comm-
ercial Loans (7)
Consol-
idated
VIEs (4)(6)
Other (7)
Elimin-
ations (5)
Total
Investments
9,928,017

3,658,398

610,326

3,456,610

144,707

3,103,434

42,281

(356,317
)
20,587,456

Cash and cash
equivalents (1)
50,950

33,632

6,676

37,686

—

—

—

—

128,944

Derivative assets, at fair value (2)
72,872

469

—

—

1,080

—

—

—

74,421

Other assets
105,282

30,285

507

68,036

837

14,788

10,251

(1,744
)
228,242

Total assets
10,157,121

3,722,784

617,509

3,562,332

146,624

3,118,222

52,532

(358,061
)
21,019,063

 
 
 
 
 
 
 
 
 
 
Repurchase agreements
8,693,555

2,830,368

463,828

1,584,138

—

—

—

—

13,571,889

Secured loans (3)
149,526

—

—

1,100,474

—

—

—

—

1,250,000

Asset-backed securities issued by securitization trusts
—

—

—

—

—

3,102,257

—

(356,317
)
2,745,940

Exchangeable senior notes
—

—

—

—

—

—

400,000

—

400,000

Derivative liabilities, at fair value
222,559

—

—

—

—

—

—

—

222,559

Other liabilities
86,747

24,599

4,629

23,365

—

9,973

705

(1,744
)
148,274

Total liabilities
9,152,387

2,854,967

468,457

2,707,977

—

3,112,230

400,705

(358,061
)
18,338,662

 
 
 
 
 
 
 
 
 
 
Allocated equity
1,004,734

867,817

149,052

854,355

146,624

5,992

(348,173
)
—

2,680,401

Less equity associated with secured loans:
 
 
 
 
 
 
 
 
 
Collateral pledged
(184,197
)
—

—

(1,355,651
)
—

—

—

—

(1,539,848
)
Secured loans
149,526

—

—

1,100,474

—

—

—

—

1,250,000

Net equity (excluding secured loans)
970,063

867,817

149,052

599,178

NA

NA

NA

—

2,586,110

Total debt-to-equity ratio
8.8

3.3

3.1

3.1

—

 NA

 NA

 NA

6.7

Repurchase agreement debt-to-equity ratio
9.0

3.3

3.1

2.6

 NA

 NA

 NA

 NA

5.2

(1)
Cash and cash equivalents is allocated based on a percentage of equity for Agency, Non-Agency, 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, GSE CRT and Consolidated VIEs are considered residential credit.
(7)
CMBS, Commercial Loans and Investments in unconsolidated ventures of $42.3 million (which are included in Other), are considered commercial credit.


12

Exhibit 99.1

December 31, 2013
$ in thousands
Agency
Non-Agency (5)
GSE CRT (5)
CMBS (6)
Comm-
ercial Loans (6)
Consol-
idated
VIEs (3)(5)
Other (6)
Elimin-
ations (4)
Total
Investments
10,944,787

3,770,130

167,981

2,628,560

64,599

1,810,262

44,403

(162,801
)
19,267,921

Cash and cash
equivalents (1)
96,957

62,669

4,658

46,328

—

—

—

—

210,612

Derivative assets, at fair value (2)
258,814

3,245

—

—

 
—

—

—

262,059

Other assets
556,982

21,533

200

12,922

356

9,033

10,349

(988
)
610,387

Total assets
11,857,540

3,857,577

172,839

2,687,810

64,955

1,819,295

54,752

(163,789
)
20,350,979

 
 
 
 
 
 
 
 
 
 
Repurchase agreements
10,281,154

2,974,998

113,066

2,082,457

—

—

—

—

15,451,675

Asset-backed securities issued by securitization trusts
—

—

—

—

—

1,806,542

—

(162,801
)
1,643,741

Exchangeable senior notes
—

—

—

—

—

—

400,000

—

400,000

Derivative liabilities, at fair value
263,204

—

—

—

—

—

—

—

263,204

Other liabilities
131,206

26,887

1,745

18,807

—

5,579

5,888

(988
)
189,124

Total liabilities
10,675,564

3,001,885

114,811

2,101,264

—

1,812,121

405,888

(163,789
)
17,947,744

 
 
 
 
 
 
 
 
 
 
Allocated equity
1,181,976

855,692

58,028

586,546

64,955

7,174

(351,136
)
—

2,403,235

Net equity
1,181,976

855,692

58,028

586,546

NA

NA

NA

—

2,682,242

Total debt-to-equity ratio
8.7

3.5

1.9

3.6

—

 NA

 NA

 NA

7.3

Repurchase agreement debt-to-equity ratio
8.7

3.5

1.9

3.6

 NA

 NA

 NA

 NA

5.8

(1)
Cash and cash equivalents is allocated based on a percentage of equity for Agency, Non-Agency, GSE CRT and CMBS.
(2)
Derivative assets are allocated based on the hedging strategy for each asset class.
(3)
Represents VIE assets and liabilities before intercompany eliminations. VIEs are securitized entities with no substantive equity at risk.
(4)
Represents the Company's ownership of asset-backed securities and accrued interest eliminated upon consolidation.
(5)
Non-Agency, GSE CRT and Consolidated VIEs are considered residential credit.
(6)
CMBS, Commercial Loans and Investments in unconsolidated ventures of $44.4 million (which are included in Other), are considered commercial credit.



13

Exhibit 99.1

Mortgage-Backed Securities

The following table summarizes certain characteristics of the Company’s MBS portfolio as of December 31, 2014:
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 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
1,236,297

 
60,764

 
1,297,061

 
30,040

 
1,327,101

 
4.05
%
 
2.60
%
 
2.66
%
30 year fixed-rate
4,432,301

 
297,311

 
4,729,612

 
60,681

 
4,790,293

 
4.29
%
 
2.97
%
 
3.05
%
ARM*
531,281

 
9,068

 
540,349

 
6,433

 
546,782

 
2.83
%
 
2.27
%
 
2.29
%
Hybrid ARM
2,901,078

 
50,757

 
2,951,835

 
25,083

 
2,976,918

 
2.78
%
 
2.34
%
 
2.24
%
Total Agency pass-through
9,100,957

 
417,900

 
9,518,857

 
122,237

 
9,641,094

 
3.69
%
 
2.68
%
 
2.71
%
Agency-CMO(4)
1,957,296

 
(1,502,785
)
 
454,511

 
(3,616
)
 
450,895

 
2.34
%
 
4.57
%
 
3.62
%
Non-Agency RMBS(5)(6)
3,555,249

 
(583,890
)
 
2,971,359

 
90,288

 
3,061,647

 
3.70
%
 
4.12
%
 
4.86
%
GSE CRT(7)
615,000

 
25,573

 
640,573

 
(15,149
)
 
625,424

 
4.85
%
 
4.11
%
 
4.02
%
CMBS(8)
3,277,208

 
54,893

 
3,332,101

 
137,734

 
3,469,835

 
4.74
%
 
4.39
%
 
4.38
%
Total
18,505,710

 
(1,588,309
)
 
16,917,401

 
331,494

 
17,248,895

 
3.74
%
 
3.38
%
 
3.49
%
*
Adjustable-rate mortgage ("ARM")


(1)
Net weighted average coupon (“WAC”) as of December 31, 2014 is presented net of servicing and other fees.
(2)
Period-end weighted average yield is based on amortized cost as of December 31, 2014 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 interest-only securities which represent 29.1% of the balance based on fair value.
(5)
Non-Agency RMBS held by the Company is 52.8% variable rate, 40.1% fixed rate and 7.1% floating rate based on fair value.
(6)
Of the total discount in non-Agency RMBS, $405.5 million is non-accretable.
(7)
GSE CRT are general obligations of Fannie Mae or Freddie Mac that are structured to provide credit protection to the GSE issuer with respect to defaults and other credit events within reference pools of residential mortgage loans that collateralize MBS issued and guaranteed by such GSE.
(8)
CMBS includes commercial real estate mezzanine loan pass-through certificates which represent 1.3% of the balance based on fair value.



14

Exhibit 99.1

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 12.0 and 12.1 for the three months ended December 31, 2014 and September 30, 2014, respectively. The table below shows the three month CPR for the Company's RMBS compared to bonds with similar characteristics (“Cohorts”):
 
 
December 31, 2014
 
September 30, 2014
 
Company
 
Cohort
 
Company
 
Cohort
15 year Agency RMBS
11.9

 
15.0

 
12.9

 
14.8

30 year Agency RMBS
11.8

 
13.5

 
12.0

 
12.8

Agency Hybrid ARM RMBS
14.3

 
NA

 
13.0

 
NA

Non-Agency RMBS
10.7

 
NA

 
11.9

 
NA

GSE CRT
7.7

 
NA

 
8.2

 
NA

Weighted average CPR
12.0

 
NA

 
12.1

 
NA


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 December 31, 2014 and December 31, 2013:
 
$ in thousands
December 31, 2014
 
December 31, 2013
 
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
9,018,818

 
0.35
%
 
18

 
10,281,154

 
0.38
%
 
19

Non-Agency RMBS
2,676,626

 
1.51
%
 
36

 
2,974,998

 
1.60
%
 
33

GSE CRT
468,782

 
1.55
%
 
27

 
113,066

 
1.49
%
 
42

CMBS
1,458,451

 
1.32
%
 
26

 
2,082,457

 
1.39
%
 
23

Secured Loans
1,250,000

 
0.37
%
 
3,472

 
—

 
—
%
 
0

Exchangeable Senior Notes
400,000

 
5.00
%
 
1,170

 
400,000

 
5.00
%
 
1,535

Total
15,272,677

 
0.81
%
 
335

 
15,851,675

 
0.86
%
 
60


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



15

Exhibit 99.1

Interest Rate Swaps
As of December 31, 2014, the Company had the following interest rate swaps outstanding:
$ in thousands
Counterparty
 
 
 
 
Notional
 
Maturity Date
 
Fixed Interest
Rate
in Contract
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
%
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
%
Citibank, N.A. CME Clearing House
 
(2)
(3)
 
300,000

 
2/5/2021
 
2.50
%
The Royal Bank of Scotland Plc CME Clearing House
 
(2)
(3)
 
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
%
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
 
(3)
 
 
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
 
 
 
 
10,550,000

 
 
 
2.13
%
(1)
Forward start date of February 2015
(2)
Forward start date of February 2016
(3)
Beginning June 10, 2013, The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates 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.



16

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, 2014 and 2013.
 
Three Months Ended 
 December 31,
 
Years Ended 
 December 31,
$ in thousands
2014
 
2013
 
2014
 
2013
Average Balances*:
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
15 year fixed-rate, at amortized cost
1,318,514

 
1,750,763

 
1,450,316

 
1,897,780

30 year fixed-rate, at amortized cost
4,782,050

 
8,208,893

 
5,723,270

 
10,217,822

ARM, at amortized cost
547,426

 
218,345

 
475,401

 
122,225

Hybrid ARM, at amortized cost
2,888,464

 
1,472,418

 
2,452,062

 
758,625

MBS-CMO, at amortized cost
461,314

 
484,222

 
476,636

 
496,607

Non-Agency RMBS, at amortized cost
3,045,312

 
3,616,160

 
3,245,701

 
3,593,337

GSE CRT, at amortized cost
634,146

 
37,431

 
478,921

 
9,435

CMBS, at amortized cost
3,342,848

 
2,562,026

 
2,947,733

 
2,412,694

Residential loans, at amortized cost
3,116,065

 
1,637,121

 
2,473,258

 
1,006,374

Commercial loans, at amortized cost
146,575

 
43,938

 
109,551

 
14,858

Average MBS and Loans portfolio
20,282,714

 
20,031,317

 
19,832,849

 
20,529,757

Average Portfolio Yields (1):
 
 
 
 
 
 
 
Agency RMBS:
 
 
 
 
 
 
 
15 year fixed-rate
2.66
%
 
2.61
%
 
2.66
%
 
2.32
%
30 year fixed-rate
3.05
%
 
3.13
%
 
3.05
%
 
2.88
%
ARM
2.29
%
 
2.41
%
 
2.30
%
 
2.35
%
Hybrid ARM
2.24
%
 
2.06
%
 
2.28
%
 
2.18
%
MBS - CMO
3.62
%
 
3.47
%
 
3.56
%
 
2.26
%
Non-Agency RMBS
4.86
%
 
4.63
%
 
4.54
%
 
4.59
%
GSE CRT
4.02
%
 
5.85
%
 
4.12
%
 
5.80
%
CMBS
4.38
%
 
4.51
%
 
4.47
%
 
4.64
%
Residential loans
3.50
%
 
3.31
%
 
3.57
%
 
3.30
%
Commercial loans
8.49
%
 
9.17
%
 
8.56
%
 
9.77
%
Average MBS and Loans portfolio
3.53
%
 
3.49
%
 
3.50
%
 
3.32
%
Average Borrowings*:
 
 
 
 
 
 
 
Agency RMBS (2)
8,974,199

 
10,922,137

 
9,444,028

 
12,107,119

Non-Agency RMBS
2,711,884

 
3,059,686

 
2,821,132

 
2,847,536

GSE CRT
460,122

 
27,549

 
351,900

 
6,887

CMBS (2)
2,694,711

 
1,973,330

 
2,305,970

 
1,900,365

Exchangeable senior notes
400,000

 
400,000

 
400,000

 
321,111

Asset-backed securities issued by securitization trusts
2,744,482

 
1,484,547

 
2,178,362

 
916,786

Total borrowed funds
17,985,398

 
17,867,249

 
17,501,392

 
18,099,804

Maximum borrowings during the period (3)
18,202,497

 
18,058,789

 
18,202,497

 
19,710,901


17

Exhibit 99.1

Average Cost of Funds (4):
 
 
 
 
 
 
 
Agency RMBS (2)
0.33
%
 
0.39
%
 
0.34
%
 
0.40
%
Non-Agency RMBS
1.56
%
 
1.56
%
 
1.54
%
 
1.60
%
GSE CRT
1.58
%
 
1.50
%
 
1.52
%
 
1.50
%
CMBS (2)
0.92
%
 
1.43
%
 
1.11
%
 
1.45
%
Exchangeable senior notes
5.62
%
 
5.62
%
 
5.62
%
 
5.61
%
Asset-backed securities issued by securitization trusts
3.02
%
 
2.95
%
 
3.13
%
 
2.91
%
Unhedged cost of funds (5)
1.16
%
 
1.03
%
 
1.13
%
 
0.92
%
Hedged / Effective cost of funds (non-GAAP measure)
2.18
%
 
2.14
%
 
2.27
%
 
1.84
%
Average Equity (6):
2,407,357

 
2,403,443

 
2,416,078

 
2,577,817

Average debt/equity ratio (average during period)
7.5x

 
7.4x

 
7.2x

 
7.0x

Debt/equity ratio (as of period end)
6.9x

 
7.3x

 
6.9x

 
7.3x

*
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, 2014, 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)
Agency RMBS and CMBS average borrowing and cost of funds include borrowings under repurchase agreements and secured loans.
(3)
Amount represents the maximum borrowings at month-end during each of the respective periods.
(4)
Average cost of funds is calculated by dividing annualized interest expense by the Company's average borrowings.
(5)
Excludes amortization of deferred swap losses from de-designation.
(6)
Average equity is calculated based on a weighted balance basis.






18


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