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Invesco Mortgage Capital Inc. (IVR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 was pressured by sharp rate moves and elevated interest rate volatility, driving Agency RMBS underperformance versus hedges; GAAP diluted EPS was -$0.09 and earnings available for distribution (EAD) per share fell to $0.53 from $0.68 in Q3 .
  • Book value per common share declined 4.8% q/q to $8.92; economic return was -0.5% for the quarter (book value change plus dividend) .
  • Capital structure improved via full redemption of Series B preferreds, funded with lower-cost repo; debt-to-equity rose to 6.7x on this shift, while unrestricted cash and unencumbered investments totaled $389 million at quarter end .
  • Management diversified hedges toward U.S. Treasury futures to reduce swap-spread exposure, which weighed on effective net interest income in Q4 but is expected to benefit from yield-curve normalization .
  • Subsequent event: dividend cut to $0.34 for Q1 2025 to preserve book value and align payouts with sustainable levered returns, an important stock reaction catalyst for income investors .

What Went Well and What Went Wrong

What Went Well

  • Agency CMBS risk premiums improved; IVR expanded allocation to Agency CMBS (now 15% of portfolio), which partially offset RMBS underperformance and provides prepayment protection and fixed maturities .
  • Net interest income improved sequentially ($13.7M vs $7.5M in Q3) as average cost of funds declined to 5.13% from 5.30%, lifting the period-end net interest margin to 0.62% from 0.26% .
  • Capital structure optimization: redeemed Series B preferreds and increased use of lower-cost repo; management expects reduced cost of capital and continued liquidity strength ($389M unrestricted cash/unencumbered investments) .
    • “We notably improved our capital structure and reduced our cost of capital by funding the redemption of our Series B Preferred Stock in December with lower cost repurchase agreements.” — CEO John Anzalone .

What Went Wrong

  • Elevated interest rate volatility and reduced investor demand drove Agency RMBS underperformance versus hedges, pressuring book value (-4.8% q/q) and producing a -0.5% economic return .
  • EAD per share declined to $0.53 from $0.68, impacted by a one-time charge from preferred redemption and the shift toward Treasury futures hedges (lower near-term effective net interest income) .
  • Portfolio shrank q/q (total MBS fair value $5.45B vs $5.87B) as IVR sold lower-coupon specified pools to manage leverage; debt-to-equity rose to 6.7x .

Financial Results

Quarter-over-Quarter and Year-over-Year Metrics

MetricQ2 2024Q3 2024Q4 2024
Interest income ($USD Millions)$68.0 $73.8 $76.1
Interest expense ($USD Millions)$59.4 $66.3 $62.4
Net interest income ($USD Millions)$8.6 $7.5 $13.7
Net income attributable to common ($USD Millions)-$18.8 $35.3 -$5.5
EPS basic ($USD)-$0.38 $0.63 -$0.09
EPS diluted ($USD)-$0.38 $0.63 -$0.09
EAD ($USD Millions)$42.3 $38.3 $32.3
EAD per common share ($USD)$0.86 $0.68 $0.53
Effective net interest income ($USD Millions)$51.9 $48.4 $46.0
Average earning asset yield (%)5.61% 5.31% 5.60%
Average cost of funds (%)5.59% 5.30% 5.13%
Effective interest rate margin (%)4.09% 3.28% 3.13%
Book value per common share ($USD)$9.27 $9.37 $8.92
Debt-to-equity (x)5.6x 6.1x 6.7x
Economic return (%)-4.1% 5.4% -0.5%

Segment Portfolio Composition

SegmentQ3 2024 Fair Value ($USD Millions)Q3 % PortfolioQ3 Yield (%)Q4 2024 Fair Value ($USD Millions)Q4 % PortfolioQ4 Yield (%)
Agency RMBS (30yr pass-through total)$5,107.8 87.0% 5.43% $4,541.5 83.4% 5.50%
Agency CMBS$675.1 11.5% 4.64% $816.1 15.0% 4.59%
Agency CMO$73.2 1.2% 9.91% $70.8 1.3% 9.20%
Non-Agency CMBS$9.9 0.2% 8.91% $9.8 0.2% 8.91%
Non-Agency RMBS$7.7 0.1% 9.31% $7.2 0.1% 11.13%
Total MBS Portfolio$5,873.7 100.0% 5.41% $5,445.5 100.0% 5.42%

Borrowings and Hedges

MetricQ3 2024Q4 2024
Total repo borrowings ($USD Millions)$5,184.9; Wtd. avg. rate 5.15%; 32 days $4,894.0; Wtd. avg. rate 4.80%; 29 days
Interest rate swaps notional ($USD Millions)$3,790; Wtd. fixed 1.37%; receive 4.96%; 5.4 yrs $3,265; Wtd. fixed 0.97%; receive 4.49%; 5.3 yrs
Treasury futures notional short ($USD Millions)$490 (Ultra 10yr) $1,402 (10yr, Ultra 10yr, 30yr)

Guidance Changes

MetricPeriodPrevious Guidance/UpdateCurrent Guidance/UpdateChange
Common dividend per shareQ4 2024$0.40 declared (paid Jan 24, 2025) $0.40 maintained Maintained
Common dividend per shareQ1 2025$0.40 (prior Q4 level) $0.34 declared (paid Apr 25, 2025) Lowered
Book value per share (intra-quarter estimate)Oct 31, 2024$8.42–$8.76 Feb 14, 2025: $8.90–$9.26 Raised (range midpoint)
Hedge mix commentaryQ3→Q4Higher swaps utilization Increased Treasury futures to ~30% of hedge notional; target 20–30% going forward Strategic shift (diversification)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Interest rate volatility & monetary policyQ2: Volatility up; swap spreads tightened; negative RMBS valuations . Q3: Volatility down; curve steepened; RMBS valuations improved .Q4: Volatility elevated; RMBS underperformed vs hedges; BV down; cautious near term .Deteriorated q/q vs Q3; cautious stance maintained.
Hedge mix (swaps vs UST futures)Q2/Q3: Heavy use of pay-fixed swaps; effective net interest income supportive .Q4: Increased allocation to U.S. Treasury futures (~30% of hedge notional) to reduce swap-spread risk; ROE trade-off acknowledged .Diversified; expect benefit if curve normalizes.
Agency RMBS demand & couponsQ2: Focus on higher coupons amid uncertainty . Q3: Higher coupon RMBS outperformed .Q4: Underperformance of lower coupons; focus on higher coupons remains; long-term favorable outlook .Short-term caution; long-term constructive.
Agency CMBS allocation & spreadsQ2: Smaller allocation (5–8% of portfolio) . Q3: Allocation increased; spreads attractive .Q4: Increased to ~15% of portfolio; risk premiums improved; low-double-digit gross ROE at purchase .Positive; diversification benefits to portfolio.
Capital structure & preferredsQ2/Q3: Ongoing preferred repurchases; announced Series B redemption .Q4: Fully redeemed Series B; lower cost of capital; D/E 6.7x .Improved cost of capital; higher leverage on repo.
Dividend policyQ2/Q3: $0.40 maintained .Q4: $0.40 maintained; Q&A: Board evaluates ROEs and competitive yields; Q1 2025 cut to $0.34 .Reset lower post-quarter to preserve BV and sustainability.
LiquidityQ2: Unrestricted cash/unencumbered investments ~$446M . Q3: ~$521M .Q4: $389M .Lower but still robust cushion.

Management Commentary

  • “Book value per common share decreased 4.8% to $8.92 and, when combined with our $0.40 per share common stock dividend, resulted in an economic return of (0.5)% for the quarter.” — CEO John Anzalone .
  • “We diversified the composition of our interest rate hedges, reducing our exposure to changes in swap spreads by increasing our allocation to U.S. Treasury futures. While this negatively impacted our effective net interest income for the quarter, we stand to benefit from future normalization of the yield curve.” — CEO John Anzalone .
  • “We purchased $181 million [Agency CMBS] at the beginning of the fourth quarter... Gross ROEs on our new purchases were in the low double digits.” — CIO Brian Norris .
  • “We believe IVR is well positioned to navigate current mortgage market volatility, given our moderate leverage and robust liquidity.” — CIO Brian Norris .

Q&A Highlights

  • Risk/reward in Agency RMBS vs Agency CMBS and dividend comfort: Management leans toward Agency RMBS as volatility declines; dividend set considering current and projected ROEs and competitive yields .
  • Hedge composition and swap spreads: Target 20–30% Treasury futures within hedge mix given swap-spread volatility; comfortable with current balance and trade-offs .
  • Outlook on Agency Mortgage caution and GSE reform: Caution is rate/vol-driven; market is not pricing GSE reform risk materially; mortgages to earn mid- to high-teens ROEs at current leverage .
  • Capital structure and preferreds role: Aim to reduce preferreds toward ~20% of capital via ATM/equity issuance and continued repurchases of Series C .

Estimates Context

  • Wall Street consensus (S&P Global) for EPS, revenue, and EBITDA was unavailable due to data access limitations during this session; therefore, we cannot provide “vs. consensus” comparisons for Q4 2024 results. Values retrieved from S&P Global were unavailable at time of request.*

Key Takeaways for Investors

  • Q4 print was weak on GAAP and EAD given rate-volatility-driven RMBS underperformance and a one-time preferred redemption charge; near-term caution remains warranted for RMBS beta exposure .
  • Strategic hedge diversification toward Treasury futures reduces swap-spread risk; expect earnings benefit if yield curve steepens and vol moderates, as management anticipates .
  • Agency CMBS expansion (15% of portfolio) enhances stability and diversifies convexity risk; consider this as a partial offset in future quarters if RMBS spreads remain volatile .
  • Dividend reset to $0.34 (Q1 2025) preserves book value and aligns payouts with sustainable levered returns—likely supportive for medium-term capital preservation, but a near-term headwind for yield-focused investors .
  • Liquidity remains solid despite lower balances, and leverage moved higher post-preferred redemption; monitor repo market conditions and funding cost trends closely .
  • Watch intra-quarter BV trajectory (estimated $8.90–$9.26 on Feb 14, 2025) and hedge mix adjustments as leading indicators for sentiment and valuation .
  • Tactical stance: favor measured RMBS exposure skewed to higher coupons and maintain awareness of CMBS opportunities; risk management via hedge mix is central to EAD stability .