Invesco Mortgage Capital Inc (NYSE:IVR) was formed to operate as a debt REIT that invests in residential and commercial mortgage backed securities besides investing in mortgage loans. The residential mortgage backed securities that Invesco is primarily interested in are MBS for which any of the government sponsored Agencies guarantee the interest and principal payment. The company also has non-Agency MBS in its portfolio, which provide the advantage of diversification to Invesco under the prevailing challenging macroeconomic environment.
The graphs above show the percentage of each type of MBS in the company’s investment portfolio at the end of the fourth quarter of 2012. Agency MBS are 69%, while non-Agency MBS constitute 17%. Within the Agency MBS holdings, the company has a large concentration in 30-year fixed rate, followed by 15-year fixed rate securities.
Recent Quarter’s Performance Review
At the end of the fourth quarter, IVR reported interest income of $145.4 million, up 3.5% sequentially. Much of the increase in interest income can be attributed to the surge in interest earning assets, partially offset by a decline in average portfolio yield. During the fourth quarter, average interest earning assets increased 5%, while average interest yield of 3.27% declined 4 basis points over the linked quarter.
During the most recent quarter, Invesco incurred $65.1 million in debt, up 8% sequentially. The surge can be associated to a hike in average borrowed funds during the quarter, partially offset by a decline in the average cost of funds. Average borrowed funds of $15.8 million increased 10% during the quarter, while the cost of funds of 1.65% decreased 2 basis points.
As a result, Invesco posted net interest income of $80.3 million, edging up from $80.2 million at the end of the third quarter of 2012. The company earned 1.62% in net interest spread, down 2 basis points from the net interest spread of the linked quarter.