Welcome to the Invesco Mortgage Capital Second Quarter 2026 Earnings Call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, press a star followed by 1 on your teletone. As a reminder, this call is being recorded. I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin the call.

Thanks, Operator. And to all of you joining us on Invesco Mortgage Capital Second Quarter 2026 Earnings Call, In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. The press release and presentation are available on our website, InvescoMortgageCapital.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide 2 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to cap. Finally, Vesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome and thank you for joining us today. I'll now turn the call over to IVR's CEO.

Good morning, and welcome to Vesco Mortgage Capital's second quarter earnings call. I'll provide a few comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q&A is our President, David Lyle, and our CFO, Mark Gregson. Before I speak to market developments and our performance for the quarter, I would like to emphasize that our management team remains focused on disciplined investment management, prudent risk-taking, and delivering attractive risk-adjusted returns for our shareholders we believe our platform is differentiated by deep expertise in agency mortgage markets strong risk management and access to extensive resources market insights and the global perspectives of investgo these advantages can combine with the long-standing counterparty relationships and enhance our ability to source to source the finance and to hedge investments position us well to navigate challenging markets, market environments, and capitalize on attractive opportunities. Importantly, our portfolio remains concentrated in agency RMBFs. Along with the meaningful allocation of agency CMBFs, these sectors continue to offer compelling risk-adjusted values supported by attractive carry, strong liquidity, and the credit protection provided by agency guarantees. Now turning to market developments, the second quarter was characterized by improving financial conditions despite some periodic bouts of volatility driven by geopolitical developments in the Middle East and by shifting expectations for monetary policy. Brazilian economic growth, strong labor markets, and an elevated inflation contributed to bear flattening of the U.S. Treasury yield curve as short-term interest rates rose more than longer dated yields amid growing expectations that the FOMC's next policy move would be a hike rather than a cut. Although the second quarter was characterized by higher interest rates and more restrictive monetary policy expectations, it's important to note that interest rate volatility declined notably from large levels, while inflation expectations moderated despite ongoing uncertainty surrounding energy prices. The two-year break-even fell sharply to 2% a quarter in from 3.25% at the end of the first quarter, and these developments supported risk assets broadly, and they contributed to higher coupon agency RBS outperformance relative to U.S. treasuries. Our agency RMBFs and TVA investments performed well, driven by attractive carry and contracting risk premiums, and our agency CNBF continued to provide notable stability supported by attractive relative valuations and predictable cash flows. Against this backdrop, we generated an economic return of 3.8 percent, consisting of monthly dividends of 12 cents per share and a modest decline in book value per share. We're estimating book value quarter to date is down roughly 2.5%, which backs out our accrued dividend, given recent mortgage underperformance. So at quarter end, our economic debt-to-equity ratio remained unchanged, and our $8.2 billion investment report agency RMBS, $1.2 billion of agency TVA, and $0.9 billion of agency CABS. We also maintained a sizable balance of unrestricted cash and unencumbered investments. Our earnings available for distribution have climbed from $0.55 in the first quarter to $0.50 in the second quarter. And as a quarter in, we hedged 97% of our borrowing costs with interest rate swaps. Regarding capital activities, we raised approximately $118 million during the quarter and more than $250 million year-to-date, enabling us to meaningfully expand and capitalize on attractive opportunities. We're encouraged by the growth of the company, which has enhanced our scale. In addition, we believe our larger equity base should ultimately broaden our building. As we continue to grow, we believe these benefits, combined with our disciplined investment approach, position us to generate attractive returns. So entering the third quarter, we go through our fourth quarter.

Thanks, Kevin, and good morning to everyone listening to the call. I'll begin on slide five, opening remarks. In the last two weeks of the quarter, Federal Reserve Chairman Kevin Ward, the chairman sought to cement a tough stance on inflation, emphasizing the price that financial markets responded accordingly. pricing in tighter near-term monetary policy, and lower future inflation expectations. Firstly, near their highest levels since early 2025, resulting in 30-year mortgage rates near activity. Positively, interest rate volatility recovered from the sharp Iran conflict-driven increase in March, largely unchanged. Slide 6 provides more detail on the agency MBS markets over the past. Despite the bear flattening move in treasury yields, both agency RMBS and CMBS spread, your coupon stack outperformed treasury hedges during the quarter. The outperformance was more pronounced in high-end dynamics. Net supply and agency RMBS remain muted. On the demand front, live financing rates for production coupons remaining below one month so far, enhancing levered return potential. Constructive supply and demand dynamics also support issuance volumes moderated during the second quarter. Summarizes the changes in our portfolio over the course of our portfolio increased 12 points as we invested pro bar netted now prioritized income protection in the portfolio with nearly 85 percent of the portfolio allocated levered gross returns on higher coupon specified pools hedged with swaps were in the mid to high teens with the current coupon spread to the five and ten year sober blend ending the quarter it's widening in july has improved given the growth and specified pools within the portfolio our allocation to agency TBA continue continuing to provide high teams as implied financing rates persist near or below one month repo rate on agency RMBS and continue to provide notable stability to the portfolio despite limited new purchases we continue to believe agency CMBS offers many benefits mainly through its inherent double digits continue to monitor the sector for opportunities to relative value, slide eight detailed disagreements collateralized by our agency on the implied funding via our agency TBA allocation. We kept our hedge ratio elevated at 97% given the increased uncertainty regarding the path of monetary policy. In addition, we continue to maintain significantly $550 million of cash and unencumbered investments at 55%. Slide nine provides detail on our hedge book at quarter end. The composition of our hedges remain weighted towards interest rate swaps, with 79% of our hedges consisting of interest rate swaps on a notional basis, and 65%. Slide 10 is a new addition to the presentation and provides our model-based estimates of book value sensitivity to instantaneous shocks. And interest rates, and at the table at the top of significant market development during the second quarter, was a pronounced flat OAS in this environment of elevated uncertainty. To conclude our prepared remarks, the management team remains committed to delivering exceptional investment performance for our shareholders. We are pleased with the performance of our agency MBS portfolio through a challenging backdrop, as the combination of higher coupon agency RMBS and our agency CMBS position, recognizing the significant benefits of this growth. Although elevated risks in the Middle East in the path of monetary policy may create near-term volatility in mortgage valuations, We continue to believe the medium to long-term outlook for our target assets remains constructive, supported by favorable supply and demand dynamics. Additionally, our liquidity position remains ample, providing substantial cushion to withstand additional market stress while maintaining the flexibility of the opportunities in our target. Thank you for your continued support for Invesco Mortgage.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1. You will be prompted to record your name. To withdraw your question, you may press star 2. Again, just press star 1 to ask a question. And one moment, please, for our first question. Looks like our first question comes from Marissa Lobo with UBS. You may ask your question.

Good morning. Thanks for taking my question. On the book value move in the second quarter, Could you talk to us about the attribution of that decline, how much was spread moves on lower coupons versus hedge performance versus the ATM issuance?

Sure, Moisa. Hey, it's Brian. Yeah, thanks for the question. Yeah, you know, as we mentioned, our higher coupon agency mortgages perform pretty well. Agency CMDS also modestly tightened on the quarter. I think, you know, our slight book value decline can be attributed to a couple of different factors. You know, we have a modestly positive duration gap, which, you know, served – which, you know, as interest rate throws on the quarter was a slight detractor. And then also, you know, maybe a modest – you know, the modest flattening of the yield curve also had a minor impact on portfolio. And as far as, yeah, as far as ATM issuance, yeah, I mean, we are issuing, you know, relatively close to par, so, you know, it's a modest impact to book value as well.

Got it. And just thinking about the pace of ATM issuance, you know, what is the remaining capacity and, you know, what should we look for in Q3, given your current portfolio growth targets and the spread environment?

Sure. Yeah, thanks for your question, Marissa. So yeah, as you know, we raised roughly 118 million in Q2, all of your ATM, at levels close to low value, that at a pretty steady run rate. We'll look to continue to do that to the extent that we can do so responsibly and where it makes sense. You know, just given the low cost associated with our ATM, we think it's a clear benefit our stockholders, you know, continue to focus around looking to reduce our fixed cost per share and improve liquidity in our stock to the extent that we can look for windows.

Okay, great. Thank you.

Thank you. Our next question comes from Trevor Cranston, Citizens JMP. Your line is open. You may ask your question.

Okay, thanks. Follow-up question on the ATM.

Can you give any update on capital that may have been raised uh in july so far and you know if if so where you guys have been deploying that within the coupon stack thanks yeah we we've um you know we we've continued to you know look for opportunities to do that and and deploy capital um it's been uh you know as i said prior just levels close to to book value where we've been able to hold our our portfolio what we uh yeah trevor hey it's brian And I would also just add, you know, I mean, we do include share count in our monthly updates.

That will be forthcoming as well. And then also, you know, as far as deployment of proceeds, you know, it's been still kind of in that higher coupon range. You know, 30 or 5s through 6s primarily. And again, as I mentioned in my opening remarks, I think specified pool valuations have become more attractive relative to TBA, just given the softness and payouts that we've seen into higher rates. And so I think moving forward, if this environment were to persist, then that would be where we would deploy most assets.

And then one question, looking at slide six on dollar roll financing, you know, there's been quite an improvement in financing on sixes in particular. Can you guys just talk about, you know, what you think has been driving that improvement, particularly on the six coupon dollar roll financing?

Yeah, Trevor, that was, as you can see, that was a pretty significant squeeze on the coupon there at the end of the quarter um that did you know if we were to extend that chart another week or so it kind of bounced back into a more reasonable range um so but you know there is like i said there's there's pretty strong um supply and demand technicals going on in that coupon um you know that coupon tends to be one that that cmo desks um you know participate in the most to create floaters and inverse IO and those kinds of things. So, you know, I think in particular, maybe there was, you know, a large money manager or something of that nature putting a bit of a squeeze on that coupon, but it has bounced back to a more reasonable level. We still think it's, you know, like we said, you know, dollar role financing is still fairly attractive in those higher coupons. So we like the allocation that we have there. But, yeah, that's a bit of an unusual kind of thing that happened at the end of the quarter.

Appreciate the comments.

Thank you. Our next question comes from Doug Harder with BTIG. You may ask your question.

Thanks, and good morning. I'm hoping you could talk a little bit about your expectations for kind of the shape of the yield curve, you know, direction of rates under Chair Warsh, and, you know, kind of how you think you're positioned and, you know, kind of what you're watching for in case you might need to change, you know, any of that hedging strategy.

Yeah, hey, Doug. Good morning. It's Brian. Yeah, certainly, you know, we've had two very different responses or reactions to the two Fed meetings under Chair Borsch. You know, I mentioned what happened in June, but, you know, just a couple of days ago, we've had a pretty significant, you know, steepening move as the, I guess the press conference was certainly more dovish than expectations. So, you know, I think, you know, for the most part, our house view is that the Fed will be on hold in monetary policy for the foreseeable future. But, you know, I think also, you know, the kind of the renewed geopolitical risks that we've seen over the last few weeks could or does make that outlook a bit more cloudy than it otherwise would have been. So, you know, there's certainly a chance that there could be a hike in the, you know, in the later half of, latter half of 2026, but again, our house view is that they'll be keeping monetary policy on hold for the foreseeable future.

Great.

And, you know, with less forward guidance from Warsh, you know, kind of how does that impact kind of how you think about volatility how you think about risk positioning you know is there anything that that that changes sure um it does yes you know our expectations are that that volatility particularly in the front end uh will increase or it has increased um you know and that tends to be a bit of a headwind for agency mortgages and i really think that's why you've seen some modest widening over the last month or a month and a half in mortgages. And so, you know, I think, you know, current coupons spread to the five and 10 years, so for blend was 143 at quarter end, and it's more like 150 now. So we've seen, you know, call it seven basis points of widening since quarter end. And I think that's, you know, largely a reflection of, you know, that potential increased volatility both due to you know reduced forward guidance or the elimination of forward guidance and also the renewed kind of middle east uh you know risks that we've seen so um you know as far as you know putting a spread range on on that um you know i think we're you know towards the wider end um you know in in march of this year we kind of hit the 160s area um you know as the middle east conflict really started to escalate and so I think that's probably a pretty good estimate of where you know we could get at the widest moments here if we were to kind of continue to see those risks escalate but you know right now we're at you know call it 150 and you know I think again there's more room for tightening I think just based on how much how supportive the supply and demand technicals are great appreciate those answers thank you as well that you know just giving a more uncertain path monetary policy we have pepper that makes sense thank you thank you

our next question comes from jason weaver with jones trading you may ask your question hey guys good morning and thanks for the question uh just one for me uh it looks like net economic investment spread is vulnerable to additional swap roll-off ahead over the next several quarters How do you see the EAD run rate evolving from there, just from that factor? And also, when the board sets dividend policy, approximately how far out are they looking? Yeah, so it makes your question. Yeah, you know, certainly something that we're mindful of as we think about our head. I think the important point here is to really note that we're evaluating the dividend each quarter. You know, I assume that's, you know, where a lot of people's thinking goes. And we're evaluating that each quarter based on current earnings as well as expected earnings, you know, our portfolio composition and market opportunity. Just to get out, you know, in front of it, I do think at present we believe our dividend is competitive. It's in line with long-term leverage and CMBS returns, which we talked about, you know, being important for us. It's also well covered at this point by the EAD, but I think, you know, as our hedge portfolio changes, you know, that will be impacted, but I think the way we think about it overall to summarize is that we believe that, you know, we have a dividend that's supported by the long-term earnings power of our portfolio, and that's how we think about it contextually. All right. Thank you for that.

Thank you. And a question comes from Jason Stewart with Compass Point. Your line is open. You may ask your question.

Hey, good morning. Thank you. Following up on Doug's question about curve shape, and I guess if you're in the camp where the Fed's on hold, you can make the argument that you'll see a deeper curve and more upside potential in tens and mortgage rates. If we follow that logic, one, disagree if you do, and two, how do you think about premium at risk or spec pools in that environment? Do they still offer compelling values? And I think you touched a little bit on convexity profiles, but maybe you can think a little bit more into which subsectors are a focal point, which ones you're avoiding, and how do you think about overall premium at risk?

Yeah, hey, Jason, good morning. The first answer is, yes, we would agree that, you know, if the Fed is on hold, we would expect to see some steepening in the yield curve. So that's, you know, that's the first part. I guess the second part is more about, you know, specified pools. You know, our weighted average pay up at quarter end was about 28 ticks. So that equates to about $50 million of market value. know so that you know if if they all went to zero that's that's about you know the impact uh would be but um you know i think you know this kind of also goes into kind of what we've talked about in the past about the deliverability um of generic collateral um and you know the value of specified pools you know in the current environment we would agree that specified pool pay-ups uh could soften But as we mentioned, you know, we think that's a pretty compelling opportunity to add because we do think that, you know, going forward, you know, the valuations of generic collateral will continue to deteriorate, and for a number of reasons. You know, I think, you know, obviously loan balance has continued to increase, which makes them more susceptible to refinance activity. and then also you know with the proliferation of more technology in the refinancing process we think that that makes best by pool selection significantly more important and you know that's kind of what our bread and butter is and so you know that's what we're going to stick to particularly as we said you know as as those payoffs kind of soften and provide attractive opportunities to add in the current environment you know i think that will serve us well you know as we move forward um you know i think you know we've seen it even over the last couple of years just how much technology has improved the refinancing um process and how much quicker um the impact is felt uh we saw it you know last fall um and again in february of this year and so you know i think um to a certain extent you know loan balance continues to be a significant um a significantly important aspect. So choosing lower loan balances that are less impacted. We like the first time home buyer story as well, but I think away from loan balance, we like being relatively well diversified across the collateral stories. So whether that be geography or high LTV or low FICO and first time home buyer, those are all things that we're kind of looking at on a relative value basis.

Okay.

I guess first-time homebuyer would be in this bucket, but are there any new, without giving away sort of, I guess, your secret sauce on where you're focused on deploying capital, are there any new spec pool stories that are being developed that are interesting? um yeah i wouldn't you know as far as being added to the portfolio yet no um but you know we're obviously certainly you know continuing to kind of look at things so um you know there's nothing that i would i would point to right off the bat no other than you know i mean first time home buyer can be included in in all those buckets you know it's typically in kind of a high lcb bucket. So, you know, that's something that we've been finding quite attractive here lately.

Okay. That's all for me. Thank you.

Thank you. Our last question comes to Marissa Lobo with UBS. You may ask your question.

Thanks. I just had a quick follow-up on how you're thinking about using swaps versus treasuries for hedging in this rate environment.

Hey, Marissa. Yeah, so we're still very comfortable, you know, with most of our hedge book being in interest rate swaps. So, again, that's kind of been in the 75 to 80 percent range on a notional basis. And so, yeah, I think, you know, going forward, you know, we saw modest improvement in swap spreads during the second quarter, but year-to-date they're still a little bit tighter.

So, we still feel like that's a pretty attractive entry point to use for our edge book okay great thank you thank you at this time i'll turn the call back over to the speakers thanks to everyone that joined our call this morning we appreciate your interest in investment mortgage capital and look forward to connecting the quarters ahead thank you and that does conclude today's conference we thank you for your participation at this time you may disconnect your