Invesco Mortgage Capital Q1 2025 slides: Improved earnings amid defensive portfolio shift

Published 08/05/2025, 13:20
Invesco Mortgage Capital Q1 2025 slides: Improved earnings amid defensive portfolio shift

Introduction & Market Context

Invesco Mortgage Capital Inc. (NYSE:IVR) reported improved first-quarter 2025 results, with positive net income and higher earnings available for distribution, despite a challenging macro environment characterized by interest rate volatility and trade war concerns. The mortgage REIT’s presentation, delivered during its May 8 earnings call, highlighted a strategic shift toward a more defensive portfolio positioning in April following the quarter’s end.

The company operates in a complex market environment where interest rates have declined across the yield curve while expectations for monetary policy have adjusted lower. Trade wars are threatening the global economy, increasing the risk of a U.S. recession according to the presentation materials.

As shown in the following chart depicting the macro environment and interest rate trends:

Quarterly Performance Highlights

Invesco Mortgage Capital reported net income per common share of $0.26 for Q1 2025, a significant improvement from the $(0.09) loss reported in Q4 2024. Earnings available for distribution per common share increased to $0.64, up from $0.53 in the previous quarter. Despite these improvements, the company reduced its common stock dividend to $0.34 per share, down from $0.40 in Q4 2024.

Book value per common share slightly decreased to $8.81 from $8.92 in the previous quarter. However, economic return turned positive at 2.6%, compared to a negative 0.5% in Q4 2024. The company’s debt-to-equity ratio increased to 7.1x from 6.7x in the previous quarter.

The company’s financial highlights and investment allocation are illustrated in the following slide:

During the quarter, Invesco Mortgage Capital issued $36.0 million of common stock under its at-the-market program and repurchased Series C Preferred Stock with a carrying value of $2.2 million. The company maintained strong liquidity with $372 million of unrestricted cash and unencumbered investments at quarter end.

Investment Portfolio Analysis

As of March 31, 2025, Invesco Mortgage Capital’s investment portfolio totaled $5.9 billion, with a strong focus on agency securities. The portfolio allocation consisted of 83.7% Agency RMBS, 15.0% Agency CMBS, 1.2% Agency CMO, and 0.1% Non-Agency RMBS.

The company increased its Agency RMBS investment portfolio by 9.5% to $5.0 billion in Q1 2025, investing proceeds from ATM issuances and sales into 30-year 5.0% to 6.5% coupons. The REIT also increased its allocation to specified pools containing exposure to credit-constrained borrowers.

The following chart shows the coupon and specified pool allocation of the company’s Agency RMBS investments:

In the Agency CMBS segment, the company added $52 million of Fannie DUS in Q1 2025. The presentation noted that Agency CMBS benefits from guarantees, lower sensitivity to interest rate volatility, and favorable financing terms, though risk premiums increased during the period.

The allocation and spread trends of the company’s Agency CMBS investments are shown below:

Financing Strategy and Risk Management

Invesco Mortgage Capital financed its Agency RMBS and Agency CMBS investments with repurchase agreements across 21 counterparties. The company hedged 85% of its borrowing costs with interest rate swaps and U.S. Treasury futures.

The company’s financing and hedging approach is illustrated in the following slide, showing the protection of cost of funds and hedge portfolio composition:

Post-Quarter Defensive Repositioning

In a notable development, Invesco Mortgage Capital significantly reduced its portfolio size after the quarter ended. As of April 30, 2025, the company reported a total portfolio fair value of $5,075 million, representing a reduction of $871 million from the quarter-end value.

The estimated book value per common share range as of April 30 was $7.74 to $8.06, indicating a further decline from the March 31 value of $8.81. The company also reduced its debt-to-equity ratio to an estimated 6.4x, down from 7.1x at quarter end, while maintaining strong liquidity with $336 million in cash and unencumbered investments.

This defensive repositioning is detailed in the following portfolio update slide:

Forward-Looking Statements

The presentation materials suggest that Invesco Mortgage Capital is navigating a challenging environment marked by interest rate volatility and economic uncertainty. The company’s post-quarter actions indicate a more cautious approach, with reduced portfolio size and leverage.

While the company achieved improved earnings in Q1 2025, the reduction in dividend and continued pressure on book value highlight ongoing challenges. The estimated further decline in book value as of April 30 suggests that market conditions remain difficult.

The company’s capital structure, including key financial metrics for both common and preferred shares, is shown in the following slide:

Invesco Mortgage Capital’s stock closed at $7.35 on May 7, 2025, and was trading up 0.68% in premarket activity on May 8, ahead of the earnings call. The stock has traded in a 52-week range of $5.86 to $9.97, according to market data.

As the company continues to navigate uncertain market conditions, its focus on agency securities and defensive positioning suggests a strategy aimed at preserving capital while managing risk in an environment threatened by trade wars and recession concerns.

Full presentation:

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