Conference Transcript - IVR 2026-05-01

Operator

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

Greg Seals, Head of Investor Relations

Thanks, Operator. to all of you joining us on Invesco Mortgage Capital's first 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 two of the presentation regarding these statements and measures, as well as the appendix for the affirmative reconciliations to GAAP. Finally, Invesco 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. Thank you for joining us today. I'll now turn the call over to IVR CEO.

Kevin M. Collins, CEO

Good morning, and welcome to Invesco Morage Comments before turning the call over to Matt Norris. Also joining us on the call this morning for Q&A is our president, David Lyle. Look, I'll begin by saying that I'm very excited to assume the executive officer of Invesco Morage Capital. And I would like to thank and congratulate our retiring CEO, John Ancelone, for his 17-year tenure with the company. John began his service as our CIO at the time of our IPO. That past nine years as CEO, leading the company through a range of market environments. So John, please know our entire team very closely with John, building on our positive. Importantly, we all have a shared commitment to disappoint investment. In addition to our team's long track record and counterparty relationships, a more challenging market environment, all of these dynamics weighed on in the context of evolving market condition where earnings available returns remain elevated. they need someone to be ahead. So together, this is a wider spread. Over to Brian to go through.

Brian Norris

Thanks, Kevin, and good morning to everyone listening to the call. I'd like to begin by also congratulating John on as well as Kevin and Dave on their newly appointed roles. As Kevin noted, the 17 years since I and the rest of the team are very excited. These transitions clearly illustrate the advantages of the relationship with Invesco that IVR has enjoyed in recent years. I am extremely excited for the future of IVR as we embark on the next chapter. So switching gears to financial markets on slide four, interest rate volatility moved to monetary policy in the Middle East in March. The 10-year Treasury yield traded in a 50% in the chart on the lower left, two cuts to Fed. Slide five provides more detail in the agency mortgage market. The sector enjoyed a strong start to the quarter, as the positive momentum from the second half, although the GSEs had been adding to their retained portfolios throughout the announcement of a $200 billion mortgage purchase program on January 8th, ignited a sharp response. However, the fine demand technical in January and March continued to wane. After the GSEs and Ginnie Mae TBA remained quite attractive, with implied financing rates, details our agency RMBS investments as portfolio increased 19%, sold our modest allocation decline in our sixth trading activity in the coupon during the quarter. Agency TBA securities represented the majority of our purchases on the quarter, as we sought to benefit from the attractive environment in the dollar roll market ultimately increasing our advocate allocations despite the increase in our tba allocation levered returns on agency rmbs heads with swaps remain attractive with the current coupon spreads the five and ten year silver blend ending the quarter near 165 basis points 25 basis points wider than year end and equating to levered gross returns in the height slide 7 provides detail in our agency cms portfolio our agency cms position performed in line with expectations. We will continue to monitor the sector for opportunities to include the value between the overall benefits as this slide 8 details our funding and hedge book report. Our hedge ratio increased from 87 to 96 to continue to result in opportunities to benefit our target assets. While we view near-term risks, we will now begin the question and answer session.

Operator

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, press star 1 to ask a question, and one moment, please, for our first question. I think our first question comes from Marissa Lobo with UBS. Your line is open. You may ask your question.

Marissa Lobo, Analyst — UBS

Marissa Lobo- Thank you, and good morning. On the equity issuance this quarter, can you speak a little to the timing of those raises and how you're thinking about future ATM activity?

Kevin M. Collins, CEO

Marissa Lobo- Yes, sure. So, you know, I guess I'll start by saying that we raised nearly $134 million net of issuance costs in Q1 through our ATM. I would say that those were timed pretty steadily, you know, across throughout the quarter. And I would say that, you know, one of the things as we're thinking about future issuance is that our capital structure is now well positioned to support IVR's long-term success. But we do plan to selectively access the ATM to raise common stock when it provides a clear benefit to our shareholders. We do continue to think that the ATM is the most efficient mechanism for raising capital. And I guess lastly, I would emphasize that responsible growth really reduces our fixed cost per share and it improves liquidity in our stock. So it's all things that we think are beneficial for the company.

Marissa Lobo, Analyst — UBS

Got it. Thank you. And just on risk management, can you speak to, you know, some of the decisions that were made for the portfolio during the volatile period in March? And would you describe, you know, upcoming periods of volatility as a trading opportunity or a constraint on your risk taking?

Brian Norris

Good morning, Marissa. This is Brian. Yeah, you know, I think the improved environment for agency mortgages that we've seen really over the past, call it, 10 to 11 months, gave us more comfort that the volatility that we saw in March would pass and that mortgage valuations or spreads would be much less volatile than, for example, what we saw last April and in previous episodes. And so, you know, we decided, you know, we were able to raise ATM throughout the first quarter, which allowed us to absorb some of that volatility as well. And, you know, we did not sell assets as a result of any increased volatility and were able to, you know, kind of invest along with and put money to work at wider levels as that volatility occurred.

Marissa Lobo, Analyst — UBS

Appreciate the answers.

Speaker 1

Thank you. and this question comes from jason weaver with jones trading you may ask your question uh good morning guys um first of all congrats on kevin and david on the elevation and well thanks to uh john on his transition after a long tenure there um first of all i i was curious about the plan for the tba position is this a structural whole part of the portfolio or plans more more or less as a placeholder for rolling into specified cash pools over time yeah hey jason it's brian uh good morning um yeah you know i think tbas certainly

Brian Norris

have a place in the portfolio structurally um you know i think probably right now because they're so attractive that our allocation is a little bit heavier or at the higher end of of what we would be comfortable with you know naturally i think uh our inclination is to own more um you know specified pools um as it's a bit more durable of a profile return profile but right now you know i think we're very comfortable with with where uh tba dollar roll markets are um and you know we think it's it's quite attractive and so i think at least in the near term uh our plan is to keep that allocation where it is got it thank you for that i'm sorry just you know i would just also add you know, I mean, agency TVAs do offer, you know, increased liquidity for the portfolio that allow us, you know, to shift, you know, leverage as we see fit in a very efficient manner. So, like I said, you know, I think structurally they do have a place in the portfolio as long as they're, you know, not too punitive from a return perspective.

Speaker 1

Thanks.

Brian Norris

That's helpful, color um and then i see the swap book maturity turned out a bit particularly in the five-year bucket was that largely a function of rolling down from the shorter duration six and a half into the into the five and five and a half yeah well i think the swap maturities um were kind of rolling down the curve themselves um you know i think you know moving from six and a halves uh into into lower coupons would actually you know require us to extend hedges um and then And that was largely done, well, really through a mixture of both Treasury futures and swaps. So we tend to own a bit more longer duration Treasury hedges than we do in swaps. A lot of our swaps are kind of at the front end of the curve.

Speaker 1

Got it. Thanks for that. And one more, if I may. Do you have an updated book value?

Kevin M. Collins, CEO

Yeah, we're up about 2% since the end of the quarter.

Speaker 1

All right. Thank you for that, Keller. I appreciate it, guys.

Operator

Thank you. Again, if you'd like to ask a question, just press star one. Our next question comes from Doug Harder with BTIG. Your line is open. You may ask your question.

Doug Harder, Analyst — BTIG

Thanks. Just following up on the risk reward, how are you thinking about what is the range that we're likely to be in for spreads and how to think about the risks that we either break out on either side of on the high end or the low end of that range?

Brian Norris

Yeah, hey, Doug, and welcome back. Yeah, I think, you know, mortgage spreads, particularly relative to swaths, again, are quite attractive. You know, they're maybe not quite as attractive as they were in previous years when volatility was much higher. But in the current environment, they're attractive, and, you know, we could see a little bit of further spread tightening. You I think that could come from actually wider swap spreads as opposed to necessarily tighter mortgage spreads versus treasuries. Because I think from a mortgage to treasury basis, valuations are, call it fair to slightly tight. So there's not a lot of spread compression in that basis. But in the mortgage-to-swap basis, I think that there is some room for progression there.

Doug Harder, Analyst — BTIG

Great. Appreciate that.

Operator

Thank you. Again, if you'd like to ask a question, just press star 1. Our next question comes from Trevor Cranston. Your line is open. You may ask your question.

Trevor Cranston, Analyst — Citizens JMP

Hey, thanks. Can you guys talk about how the GSE sort of performing as a backstop buyer of MBS impacts? You're thinking on leverage And if having sort of a lower level of downside risk necessarily equates to being willing to run at a, you know, a higher level, leverage level going forward.

Brian Norris

Yeah. Hey, it's Brian. You know, the GSEs, I think, you know, particularly in March, we did see Fannie Mae kind of come in and act as that backstop. They added, I believe, $18 billion in March alone. The GSU did add about, you know, $35 billion to their rates between portfolios in the first quarter. So, you know, they still have about $117 billion left under their current cash. And so we do think that, you know, while they are much more opportunistic than, say, the Fed during times of quantitative easing, you know, and they are, you know, being a bit more selective on coupons and actual speciality cool stories they are certainly at least in march they did you know help absorb a lot of that volatility and you're right that does that reduces spread volatility that does give us more comfort like i said you know we did let leverage drift higher in march without selling assets because we did feel more comfortable in this environment and we will continue to to be that way but again you know i think the outperformance in April has broad leverage back down to closer to where we were at the beginning of the year. And, you know, I think that's probably a more normal long-term run rate for us as we feel very comfortable from the liquidity and risk perspective there.

Trevor Cranston, Analyst — Citizens JMP

Got it. Okay. Then on the hedge portfolio, you know, you just mentioned that a lot of the sort of longer tenor hedges are in the treasury bucket currently. Can you talk about how you think about the balance between, you know, swap spreads being more negative further up the curve you go and potentially, you know, using longer dated swaps to capture some of the negative swap spreads versus, you know, the liquidity of using treasury hedges on that part of the curve?

Brian Norris

Yeah, sure, Trevor. Yeah, definitely, you know, swap spreads, particularly, you know, in the third year 30 year portion of the curve are quite negative you know near negative 80 whereas in the front end like fives and tens are more like 30 to 45 on the negative side so you're right certainly more attractive from a from a negative spread perspective but you also get a lot of spread duration out there and so you know modest changes will add a lot more volatility to the portfolio in that in that regard so you know i think you know we're much more comfortable you know just given that that spread versus swaps uh across the curve are are still very attractive um we're much more comfortable kind of you know reducing that swap spread uh volatility but by uh hedging with swaps uh at the front end of the curves call it in the you know between zero and ten years as opposed to going out as far as 30 years we do own some 30-year swaps But, you know, to the extent that, you know, we hedge out there, it's mostly in Treasury futures.

Trevor Cranston, Analyst — Citizens JMP

Makes sense. Thank you.

Operator

Thank you. And at this time, I'll turn the call back over to the speakers.

Kevin M. Collins, CEO

Yeah, with no other questions, I just want to note that we appreciate everyone on the call's interest in investical mortgage capital, and we look forward to future engagement.

Operator

Thank you. And that does conclude today's conference. We thank you for your participation. At this time, you may disconnect your line.