Invesco Mortgage Capital (IVR) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, showing total assets increased to $22.0 billion and net income reached $134.9 million for the six months ended June 30, 2019 Condensed Consolidated Balance Sheets Total assets increased to $22.0 billion, primarily driven by mortgage-backed securities and financed by repurchase agreements, with stockholders' equity rising to $2.7 billion | Balance Sheet Highlights ($ in thousands) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $22,038,078 | $17,813,505 | | Mortgage-backed securities, at fair value | $21,536,047 | $17,396,642 | | Total Liabilities | $19,367,977 | $15,526,808 | | Repurchase agreements | $17,075,065 | $13,602,484 | | Total Stockholders' Equity | $2,670,101 | $2,286,697 | Condensed Consolidated Statements of Operations Net income attributable to common stockholders was $134.9 million, influenced by a $570.6 million net gain on investments offset by a $546.2 million net loss on derivatives | ($ in thousands, except per share) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Interest Income | $147,040 | $158,831 | | Gain (loss) on investments, net | $570,564 | $(196,747) | | Gain (loss) on derivative instruments, net | $(546,193) | $200,536 | | Net Income Attributable to Common Stockholders | $134,913 | $121,479 | | Diluted EPS | $1.08 | $1.08 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income attributable to common stockholders significantly improved to $232.1 million, driven by net income and unrealized gains on mortgage-backed securities | ($ in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Income | $157,126 | $145,526 | | Total other comprehensive income (loss) | $97,200 | $(173,759) | | Comprehensive income (loss) | $254,326 | $(28,233) | | Comprehensive income (loss) attributable to common stockholders | $232,113 | $(50,089) | Condensed Consolidated Statements of Equity Total stockholders' equity increased to $2.67 billion, primarily due to net income, other comprehensive income, and common stock issuance proceeds - Stockholders' equity grew to $2.67 billion at June 30, 2019, up from $2.29 billion at the start of the year[18] - Key drivers of the equity increase were net income ($157.1 million), other comprehensive income ($97.2 million), and net proceeds from common stock issuance ($266.7 million for the six months)[18][24] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $157.0 million, while investing activities used $3.7 billion, largely funded by $3.6 billion from financing activities | ($ in thousands) | Six Months Ended June 30, 2019 | | :--- | :--- | | Net cash provided by operating activities | $157,002 | | Net cash (used in) investing activities | $(3,749,403) | | Net cash provided by financing activities | $3,611,675 | | Net change in cash | $19,274 | Notes to Condensed Consolidated Financial Statements The notes detail the $21.5 billion MBS and CRT portfolio, financed by $17.1 billion in repurchase agreements, and the use of $12.5 billion notional interest rate swaps for hedging - The company's investment portfolio of MBS and GSE CRT securities totaled $21.5 billion at fair value as of June 30, 2019, a substantial increase from $17.4 billion at year-end 2018[41][42] - Total borrowings stood at $18.7 billion, consisting of $17.1 billion in repurchase agreements and $1.65 billion in secured loans[85] - The company uses derivative instruments to manage risk, with interest rate swaps having a notional amount of $12.5 billion as of June 30, 2019[106][110] - A public offering of 16.1 million shares of common stock was completed on February 7, 2019, generating net proceeds of approximately $249.5 million[159] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses portfolio management, a 6.2% increase in book value per common share to $16.21, and core earnings of $0.46 per share for Q2 2019 - Book value per common share increased 6.2% to $16.21 as of June 30, 2019, from $15.27 at December 31, 2018, primarily due to interest rate spread tightening[236] - The company shifted its portfolio, increasing holdings of 30-year fixed-rate Agency RMBS and Agency CMBS, funded by a $249.5 million common stock offering and sales of ARM and Hybrid ARM securities[188][212][213] - Core earnings, a non-GAAP measure, were $0.46 per common share for Q2 2019, compared to $0.41 for Q2 2018[301] - The company's repurchase agreement debt-to-equity ratio, a non-GAAP leverage measure, was 7.4x as of June 30, 2019[323][325] Quantitative and Qualitative Disclosures About Market Risk The company identifies and manages market risks including interest rate and prepayment risk, with sensitivity analysis detailing their impact on portfolio value and net interest income - The main components of market risk are interest rate, principal prepayment, and market value risk[365] Interest Rate Sensitivity Analysis | Change in Interest Rates | % Change in Projected Net Interest Income | % Change in Projected Portfolio Value | | :--- | :--- | :--- | | +1.00% | (9.49)% | (1.28)% | | +0.50% | (1.53)% | (0.44)% | | -0.50% | (3.43)% | (0.14)% | | -1.00% | (24.02)% | (0.88)% | - The company actively manages risk through asset selection, sector allocation, regulating portfolio value-at-risk, and maintaining liquidity[373] Controls and Procedures Disclosure controls and procedures were deemed effective as of June 30, 2019, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of June 30, 2019[389] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2019[391] PART II OTHER INFORMATION Legal Proceedings The company was not involved in any material legal proceedings as of June 30, 2019 - The company reports no involvement in material legal proceedings as of the end of the quarter[394] Risk Factors No material changes to previously disclosed risk factors were reported for the period - No material changes to the previously disclosed risk factors were reported for the period[395] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during the three months ended June 30, 2019 - No common stock was repurchased during the second quarter of 2019[396] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[397] Other Information The company reported no other information - None[399] Exhibits This section provides a list of exhibits filed with the Form 10-Q, incorporated by reference