Invesco Mortgage Capital ((IVR)) has held its Q4 earnings call. Read on for the main highlights of the call.
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During the recent earnings call of Invesco Mortgage Capital Inc., a mixed sentiment was expressed, reflecting both improvements and challenges faced by the company. While strides were made in enhancing the capital structure and a promising start to 2025 was noted, the company also dealt with a negative economic return and declining earnings. The underperformance of agency RMBS contributed to the overall cautious tone regarding future performance.
Improvement in Capital Structure
Invesco Mortgage Capital made significant strides in improving its capital structure by funding the redemption of Series E preferred stock with lower-cost repurchase agreements. This strategic move effectively reduced the company’s cost of capital, resulting in an increase in the debt-to-equity ratio from 6.1 times at the end of the third quarter to 6.7 times at the end of the fourth quarter.
Positive Start to 2025
The company experienced a modestly positive start to 2025, buoyed by the stabilization of interest rate volatility and a clearer market outlook on future monetary policies. This has been reflected in a 2% increase in book value per common share, excluding the dividend approval.
Selective Capitalization on Agency RMBS
Invesco Mortgage Capital continues to leverage historically attractive agency RMBS spreads. With interest rate volatility moderating, these spreads are expected to perform well, presenting potential opportunities for the company.
Negative Economic Return
Despite the positive adjustments in capital structure, the company reported a negative economic return of 0.5% for the fourth quarter. This was evidenced by a 4.8% decrease in book value per common share, bringing it down to $8.92 per share.
Earnings Decline
The earnings available for distribution saw a decline, dropping from $0.68 in the third quarter to $0.53 in the fourth quarter. This decrease was primarily due to a one-time charge associated with the redemption of Series B preferred stock.
Underperformance of Agency RMBS
The agency RMBS experienced underperformance relative to treasuries during the fourth quarter, particularly in lower coupons. This was largely due to a sharp increase in interest rates, which limited the demand for discount securities.
Forward-Looking Guidance
Looking ahead, Invesco Mortgage Capital Inc. remains cautiously optimistic about the prospects for agency RMBS, given current valuations and anticipated demand improvements. The company expects a gradual increase in agency CMBS issuance, driven by strong investor demand. Despite the challenges, the company’s robust liquidity position, with $389 million in unrestricted cash and unencumbered investments, provides a solid foundation for navigating future market conditions.
In summary, the earnings call of Invesco Mortgage Capital Inc. highlighted a mixed bag of outcomes with both positive advancements and significant challenges. While improvements in capital structure and a stable start to 2025 bring optimism, the company remains cautious due to a negative economic return and declining earnings, compounded by the underperformance of agency RMBS. The forward-looking guidance suggests a watchful approach with expectations of gradual market improvements.
