Invesco Mortgage Capital Inc. Q1 FY2025 earnings call

• First quarter 2025 was characterized by tightening financial conditions with equity markets and credit spreads reacting negatively to U.S. fiscal and trade policies. Interest rates dropped across the maturity spectrum during the quarter. • Agency mortgages performance was largely consistent with treasuries in Q1, with higher coupons modestly outperforming. Post April 2nd trade policy announcements, financial conditions tightened further, agency mortgages underperformed treasuries, swap spreads tightened negatively impacting book value. • Our portfolio produced a positive economic return of 2.6% in Q1, but book value per common share declined in April with estimate between $7.74 and $8.06. • Long-term outlook for agency mortgages is favorable due to attractive valuations and eventual decline in interest rate volatility. • Agency CMBS has limited issuance, strong fundamentals, and stable cash flow profile.

Agency RMBS portfolio increased 9.5% quarter-over-quarter as proceeds from ATM issuance were invested into 30-year 5% through 6.5% coupons. Agency CMBS exposure remained at approximately 15% of the total investment portfolio, with $52 million purchased at the beginning of the first quarter. Agency mortgages performance was largely consistent with treasuries in Q1, but underperformed in early April due to market volatility. Agency CMBS risk premiums increased during the quarter.

• Book value per common share estimate for April 30th is between $7.74 and $8.06. • Remain cautious on agency mortgages in near-term but long-term outlook is favorable. • Expect investor demand to improve in higher coupons as valuations are attractive and interest rate volatility declines. • Agency CMBS may have elevated risk premiums but limited issuance and strong fundamentals provide support.

• Elevated interest rate volatility and continued policy uncertainty. • Agency mortgages underperformed in early April due to market volatility and swap spread tightening. • Potential for slower economic growth impacting agency mortgage performance.

Q: Doug Harter with UBS asked about the decision to take down leverage and managing volatile periods.

A: Brian Norris said in April they took leverage down about 0.5 turn due to increased uncertainty in monetary, fiscal, and trade policy, and bank demand being light.

Q: Trevor Cranston with Citizens JMP asked about changes to the hedge portfolio in April and impact on dividend.

A: Brian Norris said they increased hedge ratio due to near-term monetary policy uncertainty, and John Anzalone said dividend is comfortably covered.

Q: Jason Weaver with JonesTrading asked about Agency opportunity set compared to last October and reallocation of spec pool exposure.

A: Brian Norris said spreads are attractive but more conservative now due to potential fewer Fed cuts. On spec pool, loan balance pools are fully priced, and they reallocated to credit constrained due to economic uncertainty.

Q: Jason Stewart with Janney asked about forward rate outlook and hedge portfolio.

A: Brian Norris said greater uncertainty about policy, wait-and-see approach, and they keep duration gap close to 0.

Q: Eric Hagen with BTIG asked about opportunities in commercial credit and relative value.

A: Brian Norris said they are 100% agency now and haven't been looking to add commercial credit exposure.