Invesco Mortgage Capital Inc. Q4 FY2025 earnings call

• Financial conditions improved with 2 Fed rate cuts, equity markets up, agency mortgages outperformed treasuries. • Inflation trended lower, FOMC cut rates citing labor market weakness. • Fed ended quantitative tightening, reinvesting mortgage paydowns into treasury bills. • Agency mortgages had strongest calendar year performance vs treasuries since 2010, driven by lower volatility, inflows, and GSE demand. • Agency RMBS portfolio increased 11% QoQ, focused on certain coupons with prepayment protection. • Agency CMBS spreads tightened, but allocation declined slightly due to portfolio growth. • Funding and hedge book details provided, with hedge ratio stable.

The company's book value per common share increased 3.7% to $8.72. The $6.3 billion portfolio at year-end included $5.4 billion in Agency mortgages and $900 million in Agency CMBS. The Agency RMBS portfolio increased 11% quarter-over-quarter, with purchases focused in 5% and 5.5% coupons. Agency CMBS allocation declined modestly due to overall portfolio growth but offers attractive risk-adjusted yields and diversification benefits.

• Book value up approximately 4.5% since year-end through Wednesday. • View agency mortgages positively long term with favorable conditions, though near-term risks balanced. • Anticipate continued supportive supply and demand for agency mortgages, with lower volatility encouraging demand. • Mentioned January GSE MBS purchase program was well received, and Fed's T-Bill purchases solidified funding markets.

• Near-term risks balanced given recent strong performance. • Potential market stress, though liquidity position provides cushion. • Further spread tightening unlikely unless significant GSE cap increases or bank inflows occur.

Q: Trevor Cranston asks about leverage level post tightening and value in coupon stack.

A: Brian Norris says leverage was increased in Q4, comfortable with current level, and sees value in 3.5 through 5.5s coupons in TBA dollar roll market.

Q: Jason Weaver asks about year-to-date capital investment rotation and prepay risk in 5.5 and 6 pools.

A: Brian Norris says there's a push on housing affordability affecting higher coupons, focusing future purchases on lower coupons, and TBA dollar roll market is attractive in those coupons with implied funding below SOFR.

Q: Doug Harter asks about capital structure and ability to raise capital.

A: John Anzalone says capital structure is improving, ATM is used selectively when beneficial, and more on capital raising in February when monthly dividend is reported.

Q: Jason Stewart asks about ATM decision factors and government action impact.

A: John Anzalone says it's a combination of stock price and pro forma ROEs, and Brian Norris adds qualitative factors and that further GSE cap increases could lead to tighter spreads.

Q: Eric Hagen asks about book value sensitivity to spread tightening.

A: Brian Norris says magnitude of book value change to spread changes is same, but further spread tightening not expected unless significant GSE cap changes occur