Invesco Mortgage Capital Inc. (IVR) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with an 8% economic return, increased book value, and a dividend hike. The positive outlook on Agency RMBS and CMBS, supported by favorable regulatory changes and a robust liquidity position, further boosts sentiment. Although economic uncertainties exist, the company's strategic capital deployment and hedging strategies are reassuring. The Q&A section shows confidence in leverage and capital structure, despite some unclear responses. Overall, the positive financial metrics and strategic outlook suggest a likely stock price increase.
Key Financial Performance
Book Value Per Common Share $8.72, a 3.7% increase year-over-year. This was driven by a decline in interest rate volatility, broad inflows into fixed income, and increased demand from Fannie Mae and Freddie Mac's investment portfolios.
Economic Return 8% for the quarter. This was supported by a combination of increased book value and a recently increased dividend of $0.36.
Portfolio Value $6.3 billion, including $5.4 billion in Agency mortgages and $900 million in Agency CMBS. The portfolio value increased due to a constructive investment environment and modestly increased leverage to 7x.
Liquidity Position $453 million in unrestricted cash and unencumbered assets. This robust liquidity position provides a cushion for potential market stress and allows for capital deployment into target assets.
Agency RMBS Portfolio Increased 11% quarter-over-quarter. This was due to proceeds from ATM issuance, paydowns, and modestly increased leverage as the investment environment improved.
Levered Returns on Agency RMBS Mid- to upper teens, supported by favorable supply and demand technicals and lower levels of interest rate volatility.
Agency CMBS Allocation Declined modestly due to the growth in the overall portfolio. However, it continues to offer benefits like prepayment protection and fixed maturities, with levered gross ROEs in the low double digits.
Repurchase Agreements Increased from $5.2 billion to $5.6 billion, consistent with the increase in total assets.
Hedge Ratio Increased slightly from 85% to 87%, with the majority of hedges consisting of interest rate swaps.
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Operating Highlights
Agency Mortgages: Agency mortgages delivered their strongest calendar year performance relative to U.S. Treasury since 2010, driven by reduced interest rate volatility, broad inflows into fixed income, and increased demand from Fannie Mae and Freddie Mac's investment portfolios. The company remains positive on agency mortgages due to lower interest rate volatility and expectations for broadening demand and a steeper yield curve.
Agency CMBS: Agency CMBS spreads finished the year slightly tighter, supported by higher issuance levels absorbed by money manager inflows and continued bank demand for assets with stable cash flows. The company views Agency CMBS as offering attractive risk-adjusted yields and diversification benefits.
Portfolio Composition: The company’s $6.3 billion portfolio includes $5.4 billion in Agency mortgages and $900 million in Agency CMBS. Leverage was modestly increased to 7x, reflecting a constructive investment environment.
Liquidity Position: The company maintained a robust liquidity position with $453 million in unrestricted cash and unencumbered assets.
Hedge and Funding Strategy: Repurchase agreements increased to $5.6 billion, and the hedge ratio was stable at 87%. The company focused on interest rate swaps for hedging, which provided an attractive hedge profile.
Federal Reserve and GSE Actions: The Federal Reserve ended its quantitative tightening program and announced reinvestment of mortgage paydowns into treasury bills. Fannie Mae and Freddie Mac announced $200 billion in agency mortgage purchases, providing significant support for agency mortgage valuations.
Investment Strategy: The company remains constructive on Agency RMBS and Agency CMBS, focusing on prepayment protection and specified pools with lower loan balances. The strategy is supported by favorable supply and demand technicals and lower interest rate volatility.
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Risk or Challenges
Labor Market Weakness: The U.S. labor market exhibited weakness with a loss of 67,000 jobs during the quarter, which could impact economic growth and consumer spending, indirectly affecting the company's performance.
Funding Pressures: 1-month repo spreads widened by approximately 5 basis points in late September and October, indicating funding pressures that could affect financing costs and liquidity.
Interest Rate Volatility: Although interest rate volatility declined, the company does not anticipate further declines in 2026, which could pose challenges for maintaining favorable investment conditions.
Prepayment Risk: Investors were reluctant to increase prepayment risk in their portfolios, which could impact the performance of higher coupon agency RMBS.
Market Demand Variability: Bank and overseas purchases of agency mortgages remained subdued, which could affect demand and pricing stability in the sector.
Economic Uncertainty: Despite improved financial conditions, the Federal Reserve's rate cuts and the end of quantitative tightening reflect underlying economic uncertainties that could impact market stability.
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Guidance & Outlook
Interest Rate Outlook: Markets are pricing in an additional 50 basis points of Federal Reserve rate cuts through 2026. Interest rates are expected to remain stable, with reduced volatility supportive of agency mortgage performance.
Agency Mortgages: The company remains positive on agency mortgages due to lower interest rate volatility, broadening demand, and a steeper yield curve. Near-term risks are balanced, but long-term conditions are expected to remain favorable.
Agency CMBS: Agency CMBS continues to offer attractive risk-adjusted yields and diversification benefits. The company will monitor opportunities to increase allocation if relative value improves.
Funding and Hedging: The Federal Reserve's conclusion of quantitative tightening and initiation of T-Bill purchases have improved funding markets and tightened repo spreads. The company maintains a robust liquidity position to navigate market stress and deploy capital into target assets.
Investment Strategy: The company plans to focus on specified pools with prepayment protection and lower loan balances, particularly in higher coupon exposures. Levered returns on Agency RMBS hedged with swaps remain attractive, with gross returns in the mid-to-upper teens.
Market Environment: The current environment of low volatility in interest rates and spreads, along with further steepening of the yield curve and supportive supply and demand technicals, is expected to provide a positive backdrop for agency mortgages over the long term.
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Shareholder Return Plan
Dividend Increase: The company recently increased its dividend to $0.36 per share.
Economic Return Contribution: The increased dividend contributed to an 8% economic return for the quarter.
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Key Q&A
Q:Can you talk about how you're approaching the leverage level post the tightening that's occurred and where you are finding value within the coupon stack with marginal deployments today?
A:Leverage was increased slightly in Q4 due to a positive environment. While spreads are tighter, the environment remains supportive with limited spread volatility. Value is being found in the TBA dollar roll market, particularly in the 3.5 to 5.5 coupon range.
Q:Have you seen any surprises within prepaid reports in the specified pool portfolio, particularly in higher coupons?
A:No major surprises were observed. Prepayment speeds increased in higher coupons (6s and 6.5s), but prepaid protection mitigated the impact. Loan balance continues to provide superior predictability of cash flows.
Q:Year-to-date, with new capital invested, have you continued rotating down in coupon? What is the trade-off between elevated prepay risk and positioning in 5.5 and 6 pools?
A:The company is not reducing allocation by selling but is focusing future purchases on lower coupons. The TBA dollar roll market is attractive in these coupons, providing a boost as implied funding levels are below SOFR.
Q:Did you give an updated estimated book value as of today?
A:The book value was up about 4.5% through Wednesday.
Q:Can you talk about how you're thinking about capital structure and the ability to raise capital going forward?
A:The capital structure has improved, and the ATM is viewed as the most efficient mechanism for raising capital. Modest issuances were made in Q4, and conditions have been better in Q1. More updates will be provided in February.
Q:Is the decision on the ATM solely based on where the stock is, or does it also consider pro forma ROEs? Would government actions like increasing GSE limits or removing the PSPA cap change your view on MBS spreads and capital raising?
A:The decision on the ATM considers both stock price and accretive investment opportunities. Government actions like increasing GSE caps or PSPA cap removal could tighten spreads further and influence capital raising decisions.
Q:How should we think about the book value sensitivity and overall upside to further spread tightening?
A:The magnitude of book value sensitivity to spread changes remains the same due to consistent leverage. However, expectations for further spread tightening are low unless significant changes occur, such as increased GSE caps or bank participation.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about whether government actions like increasing GSE limits or removing the PSPA cap would definitively change their view on MBS spreads and capital raising. The response was more speculative and lacked specific details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CMBS liquidity
CPI Investors
CPI core
Capital remark
Equity market
Fannie Mae
Freddie Mac
Inflation reading
Investors inflation
Mac Agency
Mac investment
Mae Freddie
Markets basis
Officer QA
Reserve rate
Reserve tightening
announcement agency
asset cash
benefit term
bill Markets
bond labor
calendar treasury
cash asset
clarity trade
condition Equity
condition Federal
condition agency
confidence path
curve detail
cut condition
decline volatility
demand Fannie
demand asset
demand yield
inflow
labor market
market weakness
portfolio Agency
IVR Transcript
Invesco Mortgage Capital Inc. (IVR) Q4 2025 Earnings Call Transcript
Positive1-30
The earnings call highlights strong financial performance with an 8% economic return, increased book value, and a dividend hike. The positive outlook on Agency RMBS and CMBS, supported by favorable regulatory changes and a robust liquidity position, further boosts sentiment. Although economic uncertainties exist, the company's strategic capital deployment and hedging strategies are reassuring. The Q&A section shows confidence in leverage and capital structure, despite some unclear responses. Overall, the positive financial metrics and strategic outlook suggest a likely stock price increase.
Invesco Mortgage Capital Inc. (IVR) Q3 2025 Earnings Call Transcript
Unknown10-31
The earnings call summary presents a mixed outlook. Financial performance shows positive economic return and increased book value, but concerns about labor market weakness, funding pressures, and regulatory changes create uncertainties. The Q&A section highlights cautious sentiment about the yield curve and capital structure changes. The company's strong dividend and strategic allocation support a neutral sentiment, balancing risks and positive returns. Without market cap data, a neutral prediction is prudent, considering both positive and negative factors.
Invesco Mortgage Capital Inc. (IVR) Q2 2025 Earnings Conference Call Transcript
Unknown7-25
The earnings call summary highlights several negative financial aspects, including a negative economic return of 4.8%, a decline in book value, and concerns over fiscal policy impacting hedges. While management expresses confidence in their strategies, the Q&A reveals uncertainties in swap spreads and leverage management. Additionally, there is no strong positive catalyst such as a new partnership or record high revenue. Given these factors, the sentiment is negative, likely leading to a stock price decline of -2% to -8% over the next two weeks.
Earnings call transcript: Invesco Mortgage Q1 2025 sees EPS beat, revenue miss
Unknown5-8
The earnings call summary indicates a cautious outlook with declining book value and leverage reduction due to market volatility. The Q&A reveals management's conservative stance on leverage and hedging, and a lack of clarity on dividend impact from portfolio size. Despite some positive aspects like attractive spreads and covered dividends, the overall sentiment is negative due to economic uncertainty, potential slowdown, and policy risks. Without market cap data, the prediction is a negative stock price movement of -2% to -8%.
IVR Slides
Invesco Mortgage Q4 2025 slides: book value growth and dividend hike despite earnings dip2026-01-29
Invesco Mortgage Q3 2025 slides: portfolio growth and economic return rebound2025-10-30
Invesco Mortgage Capital Q2 2025 slides: Economic return turns negative amid market volatility2025-07-24
Invesco Mortgage Capital Q1 2025 slides: Improved earnings amid defensive portfolio shift2025-05-07
IVR Report
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