Invesco Mortgage (IVR) Q1 2026 Earnings Transcript

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DATE

Friday, May 1, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Kevin Collins
• President — David Lyle
• Chief Investment Officer — Brian Norris
• Chief Financial Officer — Mark Grexson

TAKEAWAYS

• Book Value -- Book value per share declined by 7.9% to $8.08 at quarter end amid elevated risk premiums and swap spread tightening.
• Economic Return -- Economic return for the quarter was negative 3.2%, reflecting the book value decrease combined with monthly dividends totaling $0.36.
• Dividend Policy -- The company transitioned from quarterly to monthly dividend distributions and paid $0.12 per share monthly during the quarter.
• Leverage -- Economic debt-to-equity ratio increased to 7.5x at quarter end, up from 7.0x at the beginning of the year, driven primarily by lower book value per share and an increased Agency RMBS outlook.
• Portfolio Composition -- Investment portfolio totaled $7.3 billion, allocated as $5.2 billion Agency RMBS, $1.2 billion Agency TBA, and $900 million Agency CMBS.
• ATM Equity Issuance -- Raised nearly $134 million net through the at-the-market (ATM) during Q1, with issuances paced steadily throughout the quarter.
• Liquidity -- Maintained $493.1 million in unrestricted cash and unencumbered investments at quarter end.
• Earnings Available for Distribution -- Earnings available for distribution reached $0.55 per share, modestly down from $0.56 in Q4 2025.
• Hedge Ratio -- Hedged 96% of borrowing costs at quarter end, up from 87% at prior quarter end, using interest rate swaps and U.S. Treasury futures.
• Recent Book Value Performance -- Book value has improved approximately 2% since quarter end as of the call date, according to Brian Norris.
• Agency TBA Allocation -- Agency TBA securities grew to about 17% of the total portfolio, benefiting from favorable dollar roll market conditions.
• ATM Strategy -- CEO Collins said, "We continue to think that the ATM is the most efficient mechanism for raising capital."
• Preferreds Reduction -- Actions to reduce preferred equity to roughly 20% of total equity have lowered capital costs for common shareholders.
• Risk Management Approach -- Brian Norris said, "We did not sell assets as a result of the increased volatility, and we were able to invest and put money to work at wider levels as that volatility occurred."
• GSE MBS Purchases -- GSEs added about $35 billion to retained portfolios in the first quarter, including $18 billion from Fannie Mae in March, with a remaining cap of $117 billion.

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RISKS

• Book value declined by 7.9% for the quarter, reflecting pressure from increased agency RMBS risk premiums and swap spread tightening.
• Economic return was negative 3.2%, indicating negative performance over the reported period.
• Interest rate volatility rose sharply during the quarter due to rising geopolitical tensions, higher energy prices, and renewed inflation concerns, contributing to unfavorable spread movements.

SUMMARY

Management highlighted leadership transitions, including Kevin Collins becoming CEO and David Lyle appointed President, signaling continuity following John Anzalone’s retirement. The company increased its Agency TBA allocation to capitalize on attractive dollar roll opportunities while maintaining significant prepayment protection through specified pools and Agency CMBS. Agency CMBS outperformed Agency RMBS, driven by inherent prepayment protection and resilience amid rate volatility, though no new Agency CMBS purchases were made in the quarter. Management discussed robust sector demand, noting contributions from the GSEs, banks, overseas investors, and money managers, facilitated by the GSEs’ $200 billion mortgage purchase program announced in January. The company reported that "our book value has improved by approximately 2% since the end of the first quarter," and reaffirmed comfort with liquidity and risk positioning, with leverage returning near prior year levels in April following reduced spread volatility.

• Brian Norris said, "TBAs certainly have a place in the portfolio structurally" and indicated willingness to keep the allocation elevated while dollar roll economics remain compelling.
• The company prioritized investing in lower-coupon specified pools and stated, "over 80% of the portfolio allocated to securities with some form of prepayment protection."
• Leveraged returns for Agency RMBS, hedged with swaps, were described as "in the high teens" near quarter-end and "mid to upper teens" in April after spread narrowing.
• Repurchase agreements secured by Agency RMBS and Agency CMBS decreased to $5.3 billion from $5.6 billion quarter over quarter as TBA purchases increased, with total notional hedges rising to $5.1 billion.
• Management outlined, "chart, repo markets for our assets have been remarkably stable despite broader market volatility."
• Preferred equity reduction and the move to monthly dividends were cited as factors enhancing alignment with income-focused shareholders and improving transparency on key metrics.

INDUSTRY GLOSSARY

• Agency TBA: Forward-settling trade for Agency mortgage-backed securities where specifics (“To Be Announced”) of the underlying pool are determined at settlement.
• Specified Pool: Mortgage-backed security with specified characteristics (like lower loan balances or geographic concentration) offering prepayment protection relative to generic TBAs.
• Dollar Roll: Repurchase agreement equivalent that allows investors to earn the spread between implied financing on TBAs and short-term rates, enhancing leveraged returns.
• Convexity Risk: Risk of changes in duration and price sensitivity in MBS due to varying borrower prepayment behavior when interest rates change.
• SOFR: Secured Overnight Financing Rate, a benchmark U.S. dollar interest rate for repurchase agreements, replacing LIBOR for many derivatives and loans.
• ATM (At-the-Market) Program: Mechanism enabling companies to incrementally issue and sell new equity shares into the secondary market over time at prevailing prices.

Full Conference Call Transcript

Kevin Collins: Good morning, and welcome to Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call. I will 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 are our President, David Lyle, and our CFO, Mark Grexson. I am very excited to assume the role of Chief Executive Officer of Invesco Mortgage Capital Inc., and I would like to thank and congratulate our retiring CEO, John Anzalone, for his 17-year tenure with the company.

John began his service as our CIO at the time of our IPO back in 2009, and he spent the past nine years as CEO, leading the company through a range of market environments and its transition more recently to an agency-focused strategy. John, please know our entire team is grateful for your leadership. I would also like to congratulate Dave on his recent appointment as President. Dave, Brian, and I have all worked very closely with John since IVR’s inception, and we are looking forward to building on our positive momentum alongside Mark, our CFO. Importantly, we share a commitment to disciplined investment management, consistent performance, strong governance, and expanded investor engagement.

We believe our current team, capital structure, and investment portfolio are well positioned for the future. Looking ahead, we are excited to leverage our core competencies in Agency RMBS and Agency CMBS to continue delivering attractive outcomes for our investors. In addition to our team’s long track record and experience managing residential and commercial agency mortgages, we benefit from the insights of the global investment manager, which inform our views on macroeconomic conditions, interest rate dynamics, policy developments, and broader market risks. Our deep counterparty relationships enhance our ability to source, finance, and hedge attractive investment opportunities, and we believe these advantages differentiate us from our peers.

Our entire management team remains committed to fully leveraging the resources and capabilities of Invesco. During the first quarter, we operated in a more volatile market environment, following the strong recovery in agency MBS valuations experienced in 2025. Financial conditions tightened as rising geopolitical tensions, higher energy prices, and renewed inflation concerns drove increased interest rate volatility and pushed U.S. Treasury yields higher across the curve. Short-term yields rose more sharply than longer-dated yields, largely reflecting a pullback in expectations for near-term monetary policy easing. At the same time, inflation expectations moved higher, with 2-year TIPS breakevens rising to approximately 3.25% by quarter end, up from about 2.3% at the beginning of the year.

These dynamics weighed on risk assets broadly and resulted in higher-coupon RMBS underperformance relative to Treasuries, although our Agency CMBS investments performed well during the quarter. The benefit was outweighed by increased Agency RMBS risk premiums and notable swap spread tightening. Against this backdrop, book value declined by 7.9% to $8.08 at quarter end, which, when combined with our dividends of $0.12 per month, resulted in an economic return of negative 3.2% for the quarter.

In the context of evolving market conditions, our economic debt-to-equity ratio increased to 7.5 turns as of quarter end from 7 turns at the beginning of the year, largely reflecting the decline in book value per share and our more constructive outlook on Agency RMBS as we entered the second quarter. At quarter end, our 7.3 billion investment portfolio consisted of 5.2 billion Agency RMBS, 1.2 billion Agency TBA, and 900 million Agency CMBS, and we maintained a sizable balance of unrestricted cash and unencumbered investments totaling 493.1 million. Earnings available for distribution declined modestly from $0.56 in the fourth quarter of last year to $0.55 in the first quarter.

As of quarter end, we hedged 96% of our borrowing costs with interest rate swaps and U.S. Treasury futures. Entering the second quarter, agency mortgages have performed well as risk sentiment improved and interest rate volatility moderated. While near-term inflation concerns remain elevated, they have eased somewhat, with 2-year TIPS breakevens now below 3%, suggesting a modest stabilization in inflation expectations. As a result, our book value has improved by approximately 2% since the end of the first quarter. Looking ahead, we believe a further reduction in geopolitical tensions would likely provide additional support for risk assets. From a supply and demand perspective, Agency RMBS net issuance should remain manageable.

The GSEs continue to provide steady demand, and bank participation is likely to increase. We have also taken steps to strengthen our capital structure, including actions that reduced our preferreds to approximately 20% of our total equity, which has reduced costs and benefited returns for common stockholders. We have taken steps to deepen alignment with investors, including transitioning this year from quarterly to monthly dividend distribution. We have received positive feedback that our capital structure positions us competitively within the sector and that our monthly dividend approach better aligns the cash flow needs of income investors while providing important monthly touch points regarding our key financial metrics.

With that, I will now turn the call over to Brian Norris to discuss the portfolio in more detail.

Brian Norris: Thanks, Kevin, and good morning to everyone listening to the call. I would like to begin by congratulating John on his well-deserved retirement, and Kevin and Dave on their newly appointed roles. The four of us have worked closely together for nearly 20 years, including the almost 17 years since IVR’s IPO in June 2009. I am very excited for John as he enters the next phase of his life, and I would like to express my sincere gratitude for his immeasurable contributions to IVR over the past 17 years. These transitions illustrate the advantages of our relationship with Invesco, our external manager, given the vast resources and deep bench from which our team benefits.

Kevin and Dave bring a wealth of experience, consistency, and familiarity to their new roles, and I have no doubt that they, along with Mark and I, have all the resources necessary to continue the strong momentum that IVR has enjoyed in recent years. I am extremely excited for the future of IVR as we embark on the next chapter in our company’s leadership. Turning to financial markets on Slide 4, interest rate volatility moved notably higher during the first quarter as expectations for near-term monetary policy shifted amid concerns regarding AI’s impact on employment in February to the inflationary impact of the conflict in the Middle East in March.

The 10-year Treasury yield traded in a 50 basis point range, closing at a low of 3.94% on February 27 before closing sharply higher at 4.43% on March 27 and finishing the quarter at 4.32%. As depicted in the chart on the lower left, two cuts to Fed funds were anticipated for 2026 at the beginning of the year. Those expectations were largely priced out in March amid escalating oil prices and a robust economy that showed little sign of impact from the conflict. This led to a flattening of the yield curve as 2-year yields ended the quarter 32 basis points higher while 30-year yields increased just 7 basis points.

Positively, as shown in the upper right chart, repo markets for our assets have been remarkably stable despite broader market volatility, with financing readily available and spreads over 1-month SOFR remaining within a tight range. Slide 5 provides more detail on the agency mortgage market. The sector enjoyed a strong start to the quarter as the positive momentum from 2025 carried over into the new year, aided by low interest rate volatility, a steeper yield curve, and supportive supply and demand technicals.

Although the GSEs had been adding to their retained portfolios throughout the second half of 2025, the announcement of a 200 billion mortgage purchase program on January 8 ignited a sharp response as investors rushed to get ahead of the program, leading to significantly higher valuations and lower mortgage rates in a matter of days. However, the move tighter in spreads faded the rest of January and into February as further details on the program were scarce, yet the prescribed presence of the GSEs as a buyer in the market was a clear indication that the supportive supply and demand technicals are on even stronger footing in the coming months and quarters.

As interest rate volatility increased in February and March, agency mortgage performance continued to wane, but the resulting underperformance was much more orderly than in previous episodes of market stress in recent years. Lower coupons fared best in this environment, outperforming Treasury hedges for the quarter despite the volatility. Meanwhile, higher coupons lagged throughout the period, initially due to investor concerns on prepayment risk given the administration’s focus on mortgage rates, and subsequently because of their elevated sensitivity to interest rate volatility as compared to lower coupons. Positively, pay-ups improved during the quarter, offsetting some of the underperformance of higher coupons relative to lower coupons, given increased investor demand for additional prepayment protection and premium dollar-price bonds.

We continue to believe that owning prepayment protection via carefully selected specified pools, particularly in premium-priced holdings, remains an attractive opportunity for mortgage investors and helps mitigate convexity risks inherent in agency mortgage portfolios. In addition to the GSEs, bank and overseas demand also improved in the quarter, providing additional support for the sector, while money managers and mortgage REITs were also steady contributors. The supply and demand technicals improved the economics for the dollar roll market, with most coupons enjoying attractive implied financing rates. Although this dynamic faded for conventional coupons in the latter half of the quarter, dollar rolls on production coupon Ginnie Mae TBA remained quite attractive, with implied financing rates well below 1-month SOFR.

Slide 6 details our Agency RMBS investments as of March 31. Our portfolio increased 19% quarter-over-quarter as we invested proceeds from common stock ATM issuances. We sold our modest allocation to 6.5% coupons early in the quarter as efforts to reduce mortgage rates increased prepayment risk in our holdings, while purchases were primarily focused in 4.5% through 5.5% coupons. The decline in our 6% allocation was a result of paydowns and the overall growth in the portfolio, as we had limited trading activity in that coupon during the quarter.

Agency TBA securities represented the majority of our purchases in the quarter as we sought to benefit from the attractive environment in the dollar roll market, ultimately increasing our allocation to approximately 17% of the total portfolio. Despite the increase in our TBA allocation, our total portfolio continues to benefit from significant prepayment protection, with over 80% of the portfolio allocated to securities with some form of prepayment protection via over 5 billion of specified pool Agency RMBS and nearly 900 million of Agency CMBS. We continue to favor specified pools with lower loan balances given their superior predictability of future cash flows, while we remain well diversified across collateral stories, with limited changes during the quarter.

Leveraged returns on Agency RMBS hedged with swaps remain attractive, with the current coupon spread to a 5- and 10-year SOFR blend ending the quarter near 165 basis points, 25 basis points wider than year end and equating to levered gross returns in the high teens. April’s outperformance has since narrowed the spread by 10 basis points, with levered returns remaining attractive in the mid to upper teens. Slide 7 provides detail on our Agency CMBS portfolio. Risk premiums tightened meaningfully in January, consistent with Agency RMBS spreads, and also proved resilient amid the sharp increase in interest rate volatility in the latter half of the quarter, only modestly widening in February and March.

Our Agency CMBS position performed in line with expectations, providing stability in times of stress and outperforming Agency RMBS across the coupon stack for the quarter. Despite the lack of new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Leveraged gross returns are in the low double digits and remain consistent with lower-coupon Agency RMBS, while financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels.

We will continue to monitor the sector for opportunities to increase our allocation to the extent the relative value between Agency CMBS and Agency RMBS is attractive, in order to provide additional stability to the portfolio, recognizing the overall benefits as the sector diversifies risks associated with Agency RMBS. Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments decreased from 5.6 billion to 5.3 billion, as most of our purchases during the quarter were in Agency TBA, while the total notional of our hedges increased from 4.9 billion to 5.1 billion.

Our hedge ratio increased from 87% to 96%, primarily due to the increased allocation to Agency TBA. The composition of our hedges remained weighted toward interest rate swaps, with 81% of our hedges consisting of interest rate swaps on a notional basis and 65% on a dollar-duration basis. Swap spreads tightened during the quarter, creating a modest headwind in performance. Despite the recent tightening, we remain comfortable maintaining the majority of our hedges in interest rate swaps, as we believe swap spreads are relatively tight and offer an attractive hedge profile relative to Treasury futures.

To conclude our prepared remarks, the sector experienced a more challenging environment in the first quarter as a supportive trend of moderating financial market volatility reversed amid escalating geopolitical tensions. While higher-coupon agency mortgage valuations recovered a portion of their first-quarter underperformance in April, developments in the Middle East conflict will continue to drive interest rate markets in the near term, leaving the sector somewhat vulnerable to headlines and further bouts of increased volatility.

Positively, the supply and demand environment for the sector is at its most supportive in a number of years, with money managers, mortgage REITs, banks, overseas investors, and the GSEs providing more than enough demand to absorb net supply, both organic and runoff from the Fed balance sheet. This supportive environment has resulted in, and should continue to result in, reduced spread volatility from the levels experienced in recent years, reducing the risk of a more significant or more protracted dislocation. Lastly, our liquidity position remains ample, providing substantial cushion to withstand additional market stress while also allowing sufficient capital to deploy into our target assets as the investment environment improves.

While we view near-term risks as balanced, we believe agency mortgages are poised to perform well as geopolitical tensions moderate and their impact on the U.S. economy becomes more clear. Thank you for your continued support of Invesco Mortgage Capital Inc. We will now open the call for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1. You will be prompted to record your name. To withdraw your question, you may press 2. Again, press 1 to ask a question. One moment, please, for our first question. Our first question comes from Marissa Lobo with UBS. Your line is open. You may ask your question.

Analyst: Thank you, and good morning. On the equity issuance this quarter, can you speak to the timing of those raises and how you are thinking about future ATM activity?

Kevin Collins: Yes, sure. We raised nearly 134 million net of issuance costs in Q1 through our ATM. Those were timed pretty steadily throughout the quarter. 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 continue to think that the ATM is the most efficient mechanism for raising capital. Lastly, I would emphasize that responsible growth reduces our fixed cost per share and improves liquidity in our stock, all of which we think are beneficial for the company.

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

Brian Norris: Good morning, Marissa. The improved environment for agency mortgages that we have seen over the past 10 to 11 months gave us more comfort that the volatility 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. We were able to raise ATM throughout the first quarter, which allowed us to absorb some of that volatility as well. We did not sell assets as a result of the increased volatility, and we were able to invest and put money to work at wider levels as that volatility occurred.

Operator: Our next question comes from Jason Weaver with JonesTrading. Your line is open. You may ask your question.

Jason Weaver: Good morning, and congrats to Kevin and David on the elevations, and thanks to John on his transition after a long tenure. First, I was curious about the plan for the TBA position. Is this a structural, hold part of the portfolio, or more of a placeholder for rolling into specified cash pools over time?

Brian Norris: Hey, Jason. Good morning. TBAs certainly have a place in the portfolio structurally. Right now, because they are so attractive, our allocation is at the higher end of what we would be comfortable with. Naturally, our inclination is to own more specified pools, as that is a more durable return profile, but we are very comfortable with where TBA dollar roll markets are, and we think it is quite attractive. At least in the near term, our plan is to keep that allocation where it is. In addition, agency TBAs offer increased liquidity for the portfolio, allowing us to shift leverage as we see fit in a very efficient manner.

So structurally, they do have a place in the portfolio as long as they are not punitive from a return perspective.

Jason Weaver: Thanks. I see the swap book maturity termed out a bit, particularly in the five-year bucket. Was that largely a function of rolling down from the shorter duration 6.5% into the 5% to 5.5% coupons?

Brian Norris: The swap maturities were rolling down the curve themselves. Moving from 6.5s into lower coupons would actually require us to extend hedges, and that was done through a mixture of both Treasury futures and swaps. We tend to own a bit more longer-duration Treasury hedges than we do in swaps, with a lot of our swaps at the front end of the curve.

Jason Weaver: One more, if I may. Do you have an updated book value quarter-to-date?

Brian Norris: We are up about 2% since the end of the quarter.

Operator: Thank you. Our next question comes from Doug Harter with BTIG. Your line is open. You may ask your question.

Doug Harter: Thanks. Following up on the risk-reward, how are you thinking about the range we are likely to be in for spreads, and how should we think about the risks that we either break out on the high end or the low end of that range?

Brian Norris: Hey, Doug, and welcome back. Mortgage spreads, particularly relative to swaps, are quite attractive. They are not quite as attractive as they were in previous years when volatility was much higher, but in the current environment, they are attractive. We could see a little bit of further spread tightening. That could come from wider swap spreads as opposed to necessarily tighter mortgage spreads versus Treasuries, because from a mortgage-to-Treasury basis, valuations are fair to slightly tight. In the mortgage-to-swap basis, there is some room for compression.

Operator: Thank you. Again, if you would like to ask a question, please press 1. Our next question comes from Trevor Cranston. Your line is open. You may ask your question.

Trevor Cranston: Thanks. Can you talk about how the GSEs performing as a backstop buyer of MBS impacts your thinking on leverage, and if having a lower level of downside risk equates to being willing to run at a higher leverage level going forward? And then I have a follow-up on hedging.

Brian Norris: Sure, Trevor. Good morning. In March, we did see Fannie Mae come in and act as that backstop; they added, I believe, 18 billion in March alone. The GSEs added about 35 billion to their retained portfolios in the first quarter, and they still have about 117 billion left under their current cap. While they are much more opportunistic than the Fed during times of QE, and more selective on coupons and collateral stories, they certainly helped absorb a lot of the volatility in March. That reduces spread volatility and gives us more comfort.

We did let leverage drift higher in March without selling assets because we felt more comfortable in this environment, and we will continue to be that way. The outperformance in April has brought leverage back down closer to where we were at the beginning of the year, which is probably a more normal long-term run rate for us, and we feel very comfortable from a liquidity and risk perspective there.

Trevor Cranston: On the hedge portfolio, you mentioned that a lot of the longer-tenor hedges are in the Treasury bucket currently. How do you think about the balance between swap spreads being more negative further up the curve and potentially using longer-dated swaps to capture some of the negative swap spreads versus the liquidity of using Treasury hedges on that part of the curve?

Brian Norris: Definitely, swap spreads for us, particularly in the 30-year portion of the curve, are quite negative, near negative 80 basis points, whereas in the front end like 5s and 10s they are more like negative 30 to negative 45. Longer-dated swaps are more attractive from a negative spread perspective, but you also get a lot of spread duration out there, so modest changes will add more volatility to the portfolio. Given that mortgage spreads versus swaps across the curve are still very attractive, we are more comfortable reducing swap spread volatility by hedging with swaps at the front end of the curve, call it between zero and ten years, as opposed to going out as far as 30 years.

We do own some 30-year swaps, but to the extent that we hedge out there, it is mostly in Treasury futures.

Operator: Thank you. I will now turn the call back over to management for closing remarks.

Kevin Collins: With no other questions, we appreciate everyone’s interest in Invesco Mortgage Capital Inc., and we look forward to future engagement.

Operator: Thank you. That concludes today’s conference. We thank you for your participation. At this time, you may disconnect your line.

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