Invesco Mortgage Returns to Profit as Derivatives Improve
The investment portfolio expanded to $8.15 billion as the mortgage REIT added agency securities.
Invesco Mortgage Capital (IVR), a mortgage real estate investment trust, returned to a second-quarter profit as its derivative positions gained value. Net income attributable to common stockholders was $31.8 million, or $0.34 a share, compared with losses of $23.1 million in the prior quarter and $26.6 million a year earlier.
The result marked a reversal from two consecutive comparison-period losses, while the company expanded its balance sheet and shifted more of its portfolio into 30-year agency residential mortgage-backed securities. The improved GAAP result came despite continued pressure on effective interest-rate spreads.
Earnings available for distribution increased to $47.1 million from $44.7 million in the first quarter and $38.2 million a year earlier. On a per-share basis, however, they declined to $0.50 from $0.55 sequentially and $0.58 a year earlier.
Net interest income rose to $30.1 million from $27 million in the prior quarter and $17.7 million a year earlier. The GAAP net interest margin edged down to 1.42% from 1.44% sequentially, while remaining above the year-earlier 0.94%. Effective net interest income also increased, though the effective interest-rate margin narrowed to 2.82% from 3.05% in the first quarter and 3.44% a year earlier.
Balance-sheet growth helped offset that compression. Average earning assets increased to $6.63 billion from $5.95 billion in the first quarter, while average borrowings rose to $5.93 billion from $5.37 billion. The portfolio’s share of 30-year agency residential mortgage-backed securities climbed to 73.4%, led by a roughly $500 million increase in 4.5%-coupon holdings.
Other income swung to $10.4 million from a $42.1 million loss in the first quarter, driven by a $31.6 million net derivative gain. A year earlier, derivatives had produced a $30.9 million loss. Total expenses increased to $5.45 million as management fees and general-and-administrative costs rose.
Book value slipped five cents during the quarter to $8.03 a common share, but economic return rebounded to 3.8% from negative 3.2% as the company maintained its $0.36-a-share dividend. GAAP debt-to-equity increased to 6.3 times, while economic leverage held at 7.5 times.
Invesco Mortgage ended June with $548.3 million of unrestricted cash and unencumbered investments, up from $532.5 million a month earlier. It also expanded its interest-rate hedges, increasing pay-fixed swap notional and short Treasury-futures positions as the larger portfolio left results more exposed to narrowing spreads and changes in asset values.