Invesco Mortgage Capital Inc. Q1 FY2026 earnings call

Kevin Collins assumed the role of CEO, thanked John Anzalone for his 17-year tenure, and congratulated Dave on his appointment as president. The team is committed to disciplined investment management, consistent performance, etc. Market environment was challenging in Q1 but more constructive for agency RMBS and CMBS going forward. Team has experience and resources, including insights from Global Investment Manager and deep counterparty relationships. Successfully reduced preferred equity and changed to monthly dividends.

As of March 31st, the investment portfolio was $7.3 billion, consisting of $5.2 billion agency RMBS, $1.2 billion agency TVA, and $0.9 billion agency CMBS. Book value declined by 7.9% to 8.08 in the first quarter, resulting in an economic return of negative 3.2%. Earnings available for distribution declined modestly from $0.56 in the fourth quarter of last year to $0.55 in the first quarter. The economic debt to equity ratio increased to seven and a half turns at quarter end. Successfully reduced preferred equity to less than 20% of total equity and transitioned from quarterly to monthly dividend distributions.

Agency mortgages performed well in Q2, agency RMBS net issuance should be manageable with GSE demand and bank participations, agency CMBS offers attractive risk-adjusted yields. Macro and market technical factors are constructive for agency RMBS, wider spreads offer attractive entry points, agency CMBS has stable cash flow. Believes geopolitical tensions reduction would support risk assets, supply and demand technicals are supportive for agency RMBS and CMBS.

Market environment affected by geopolitical tensions, interest rate volatility, swap spread tightening as a headwind, Middle East conflict impact on interest rate markets, spread volatility risk, need to monitor market stress despite ample liquidity.

Q: 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?

A: Raised nearly 134 million net of issuance costs in Q1, timed steadily, plan to selectively access ATM when beneficial.

Q: 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 constraint on your risk taking?

A: Improved environment for agency mortgages gave comfort, raised ATM throughout Q1, didn't sell assets, could invest at wider levels.

Q: Is the plan for the TBA position a structural whole part of the portfolio or plan more or less as a placeholder for rolling into specified cash pools over time?

A: TBAs have place in portfolio, allocation is comfortable now, plan to keep for near term.

Q: How are you thinking about 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?

A: Mortgage spreads relative to swaps are attractive, could see further spread tightening via swap spreads.

Q: Can you talk about how the GSE sort of performing as a backstop buyer of MBS impacts, thinking on leverage, and if having sort of a lower level of downside risk necessarily equates to being willing to run at a higher leverage level going forward?

A: GSEs acted as backstop, reduced spread volatility, gave comfort to let leverage drift higher in March, leverage back to near start of year level now.

Q: Can you talk about how you think about the balance between swap spreads being more negative further up the curve you go and potentially using longer dated swaps to capture some of the negative swap spreads versus using treasury hedges on that part of the curve?

A: Swap spreads more negative further up curve, but more comfortable hedging with swaps at front end due to swap spread volatility adding to portfolio volatility