IVR - Earnings call transcript Q4 2017 | Invesco Mortgage Capital Inc.

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Operator

Good morning, ladies and gentlemen. Welcome to Invesco Mortgage Capital Incorporated Fourth Quarter 2017 Investor Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.

Now I would like to turn the call over to Tony Semak, an Investor Relations. Mr. begin. may you Semak

Tony Semak

and and to everyone. quarter Invesco am Investor call. Mark, to us. XXXX with team forward really session. the we prepared welcome during I Relations, with traditional Semak to you Mortgage you Tony management good minutes, you, Again several our look the you morning, question-and-answer want We earnings our Thank Capital next and with before delighted I remarks are joined sharing we conclude fourth

Anzalone, John Investment are our today Executive our Officer; Financial Chief me Joining Officer. Collins, Lyle, our Marshall, Chief and Officer; Chief Jason Chief Operating Dave Phegley, Lee our Officer; Kevin President;

associated the the the the and be in provide to include provided statements conference Before Safe I’ll Laws the we Private of forward-looking preceed as forward-looking statements and Harbor information Securities then the covered that statements are meaning begin, defined XXXX within U.S. Comments Act disclosure constitute to remarks. we’ll the intended the call and such management Reform statements may of customary Securities by in same. Litigation made by

statements sources, of return, income yields, financing rates, funds, portfolio of market Forward-looking stability residential continue interest in trends, earnings, including on and our trends, target our our commercial of risk financial changes market including performance book spreads, our assets, and the economic estate the for conditions, real comprehensive market, the equity and domestic our include our cost portfolio, allocation. core to positioning value, our leverage performance, ability credit views and global the our prepayment

identify conditional should any depends statements. statement would projects, will, plans, could, as well forecasts to events believes, necessarily forward-looking as such verbs expects, and addition, In intends, anticipates, that future intended may, estimates, and as or are such on as other future words

you in out oral disclaim forward-looking of We qualified that inaccurate. make be we to Factors, statements Risk investors risks appreciate are on our the that presentation Operations and or joining to be available any notice. they any us. forward-looking XXX-XXX-XXXX public replay and statement and captions our through any not We we materially our later forward-looking turns expressly for information available March Form caution rely assurance statements to Financial can if really and All not consider our can attributable from participating written you or differ and by much this call any guarantees involve urge today Again, to expressly welcome on which expectations. on are XX-Q, results identified Commission’s Discussion no website are Securities the the Statements Exchange There statements actual unduly of Form and An not on on cautionary audio and and Annual and are uncertainties disclosure, Results XX-K thank assumptions. obligation you the Conditions risks, that you X, will international website on Report dialing X-XXX-XXX-XXXX. access Forward-looking the Forward-Looking Quarterly this Management’s callers in or and Reports archive at so us update be of under be by will www.sec.gov. Analysis carefully and for to

Executive our will Chief We Officer, from Anzalone. hear John now John?

John Anzalone

Collins, CIO; our we X, and fourth Invesco of Dave the COO. join thank go follow through Marshall, and Lee you our for Jason begin our on me fourth show for results. me Kevin Slide and Capital’s morning, and today portfolio call. where me will Q&A. quarter overview an Good will our I'll Lee, and our section Lyle, joining President; Phegley, Mortgage Jason quarter earnings are Kevin With CFO; Dave

up economic the to quarter, brought X.X% for had in up at a book XX.X%. the or coming $X.XX $XX.XX per X% $X.XX the we see, you from value to As share. of strong which $X.XX return strong This with generated economic return share, an quarter. very earnings year can XXXX for a the end a core per And prior to

consensus Series Index common Capital, the expectations reducing of economic total and full-year XX.X% SmallCap highest returns some our pleased while C core We This the in are book the the value results including full-year shareholders amongst and peer XXXX. consecutive of common Invesco quarterly group, volatility. our for four in S&P dividend, of Mortgage Preferred consecutive offering also XXX total the increases to two among achievements, ranked and our stock milestone and quarters very reflected inclusion beating with very return EPS

core to a of impact to slowdown a For the Speeds. in the with in increase the X fourth prepayments attributable primarily value quarter during Preferred Series the to of C offering extent in lesser the Slide quarter. earnings is down components breaks change book the quarter, the full and

net which negative to I'd a our drag, were reduced the mortgages benefit book value hedges mildly to right, peer impact graph shows point contributor only to exposure credit our the book our out our value agency annualized of group. book relation this at While risk in while performance, especially exactly offset value. bottom like the of the volatility

that notice peers continue with compare You'll this we our to by favorably measure.

across the markets will bit, across a the We'll to talk to bad will to book cause but volatility volatility key course, metrics are continued such bouts little I our recent is of believe favorably the Slide likely Of management across amongst measures peers best our move we this increased compare space, not as X effectiveness. in highlight to thing. value a we've perhaps few about of to a increase financial how

its the up environment in outperforming growth, economic the some performance dividend best outlook dividend, up its on returns, current for book value group delivered the has by wrap shareholders. slide, about or earning among is for ranking whether high-level giving consistently average Capital and and it’s highlighted the IVR IVR. I'll peer Invesco comments As Mortgage

our of XXXX the rates is positive their six seen Typically, the it the the This caused since sharp by book relatively moves volatility rates the risk fourth the macro of a continuing opposite assets quarter in quarter-to-date. While was combination spreads of markets. assets Whereas directions. first any return in credit rates both have interest risk we higher hedge in][ph] was sector. help value normally and trajectory, adverse agency roughly the X% keep a move [higher weeks is grinding fourth duration in taken that being quarter, a value in position move and during offset our moves almost and we book lower in a seen too characterized as widening by unchanged and to equally has overlays long in

several those and during crucial one and over reducing assets management of been all like is this months. actively is our times. correlated Active when occasions are the there However, times these, exposure have become interest-rate last we

accretive earlier. forward we them opportunities our on spreads closer capitalize this alluded ROEs will I value and believe target fundamentals decline deteriorating much value opportunities a The as that curve view we yield widening moves we these as that so to with in steeper greater of particularly did that future temporary, on these return forward. credit the underlying given in credit volatility to silver and also While lead book they to new assets combined the more correspond look the is with of calls. not develop, book how levels, going on moving highlighting spread to lining this welcome we Hence wider

a comments dividend core priority. of a sustainability and Finally, as I remains want about of that to earnings make high the couple the

progress been have higher Our and all into earnings further the as good core quarters may been opportunities we fees trending slowed prepayments preferred reinvestment that few improvements anticipate accretive tailwinds. have past further equity as XXXX. offering moderate We

are interest higher as As margins. accommodation, pressure in funding markets rates continues expectation net the remove reflecting for to the on ease may which costs Fed

to with present sustained was challenges. in dividend increased it near-term the the rates the that again, in be interest we recently opportunities will believe expectation However, and higher could addition

also So value to our the credit the shareholders. that now ROEs the and remain that, and of our – beliefs has strength the such four remain an recently underlying mitigate volatility more assets portfolio. increased it's deliver convicted but in Jason paramount could will supportive we than importantly likely ultimately discuss degree. interest-rate years, would our some fundamentals to rise in in performance Book we we in With first will deeply environment, investments risk which for new time see

Jason Marshall

and you, now take I’ll on for mentioned John. some quarter time John the seen at Thank we and elaborate of some trends fourth the what since. to quarter portfolio activity have the for discuss both

quarter, spreads fairly tighter. opportunities limited move accretive During the investment remained as

some notable replacing portfolio CMBS. of of to and limited which this included These purchased loan most did in as was our XX%. paydowns, $XXX accretive our million quarter and ROE X% at by most equity contains paydowns. the subordinates allocations. all the between opportunity. XX% $XXX remains million purchasing MBS, here XX-year We commercial agency levels and were for investments activity Our agency current asset The Page of investment increase is MBS that actionable X change

Turning yield to the curve; did flattened. positioned in during value, flatter little curve during position we value there impact sectors tighter, as negatively while value of book to the quarter. a be book book spreads change all the quarter invested the we has our moved But continue the for long-duration

have in quarter steepened. thus volatility we in rate the As rates off far is a up John are curve seen first pick spread sold and notable mentioned, the as in

the been but tighter more by increased at of consequently most and fear primarily the points with and the XX well regained since spreads cases during has Equity most to CMBS, recovery sell-off Federal X.X% Additionally, inflation, much driven in have of those expectations Despite fear increased have in widened in spreads, by non-agency Much this now have to when CRT, are inflation. nominal an in held in coupon. has losses. approximately wage-push agency the volatility notably been markets and in assets. tightening credit the increase MBS structured corrected, aggressive year the rates a equities, spreads correction sell-off, risk or basis The relatively related Reserve. looking of of XX

are While of likely continue Outside short-term catalyst and to focus Fed's to limited power, we in keep PC the feel it's of cognizant That what equity year, Fed's on inflation and deflator we be since for target some the versus remain as range, state do focus wages of their much increase to still wages, maybe volatility compared see that have of duration mind reduced some year. higher we market would the don't myopic recently X% in our in looking the absorb have on be target when the and above inflation said, market's increase, likely we preferred companies does below last end to to misplaced, overall inflation pricing margins. thus the at that believe potential the in inflation measure. that important see increase communicated

we’re opportunities, prepared could some While this create and you. is remarks in today. session. to for to likely our the environment. This Q&A ability open this please my confident concludes challenges, some navigate Thank Operator, you

Operator

you. Thank

now Instructions] begin Credit of [Operator the from is We Harter First question Douglas will session. Suisse. question-and-answer

Douglas Harter

When you or spread the the spread And can were talking have just in two measure the how in of about about talk what nominal kind of moved first more you those far kind relevant quarter? think the is OAS? then you so widening,

John Anzalone

did on Yes. They during hedge pretty like tight wider. focus other the We’ve really hand, OAS on nominal tend seen been historically at have or fourth probably commercial explicitly X. to spreads REITs, widened banks, hedge, because levels. of roughly has volatility. don't only the quarter institutions X most basis the points XX nominal We tighten

is the that of component we nature expect and germane measure ROE more that look increase as you the So can given vol things nominal what relevant we portfolio. actively of don't our and at more to to think that

Douglas Harter

about its XXXX of It makes sense and spreads go Fed kind we balance through talk sheet? for the of expectation just reducing kind your as can you with

John Anzalone

of by won't rate $X really think sell-off. Sure. be of we're seen extension kind anything goes still that higher where levels as related they what monthly cap. recently could estimate in the that taper ultimately they widening. it receiving as of worst We at the lot wider, see, a of reinvesting been basis little they’re year. XX the progresses, but maybe over our say optimistically duration XX probably with Yes, the of are could We result think We points above widening I do to kind XX that widening levels is moving I the the points Fed We'll be a certainly of quarter, basis has fourth all the kind bit because we've billion, would in to started prepays. overall in program XX case planned we assuming that but

XX probably estimates right XX up to up aggressive I being But number. more XX. have people Some to all will think ultimately the end

we – will looking XX not higher our point what's inflation demand mortgages commercial yields strong, [ph] So and comments a on we're we're of at from But certainly estimate. spike bank kind relatively these think will reduce really that's maybe levels. indicated, supply [higher] even for these basis some levels still big not XX so really as nominal behind remain to widening my

Douglas Harter

I that to as ability a to to use as you seen rate the of component? date guess are kind to further with thinking how we've versus an agency widening the about add backdrop, this opportunity risk

John Anzalone

Yes.

capital to If I look and accretive portion to in of unless new agency, this probably don't come still we current in we I any intent if we opportunities. our of think were the some prepays other some CMBS in and have We've at take hedged we'd levels. point, the comfortable we'll that be monthly seen get ROEs steeping. have widening in curve cover to incremental in, adding we've leverage moved to agencies XX% but to coming add had up anything capital with sector, any closer some maybe think type to seen or we

So given of just we now, kind still see exposure. all But would the rate as volatility, out in hedge right we attractive. it increase

quarter-end, I soon. anytime to our and add we've mentioned, at duration not to since likely taken As down some risk it we're

Douglas Harter

right, you. All very helpful. that’s Thank

Operator

you. Thank

Hagen is of Keefe, & Woods. from question Eric Bruyette Next

now Your open. is line

Eric Hagen

quarter. Thanks. and another – Good good on quarter morning congrats a good

You maybe the how about but thinking just it, environment? can leverage sort elaborate are little you in bit of on just current about a you talked

Jason Marshall

around levels timing. that the six at running for several is have there comfortable pretty Yes, that we quarters. we're been think I generally some Yes, past for

some increase have seen We involved.

I and think of assets as that do people varying now you argue that could continue relatively might expectations have tight. the risk what can are Fed

we'd very I compelling to So opportunities, in but are an a to to up that's Maybe think us, if said, something we if now. to as where leverage potential volatility widen likely to looked take and maybe right of right and John take increase lead appeared were just don't take advantage point of around as to leverage now, years think that of I give market area up we'll call based value six take or But it compelling, little X.X a fluctuations. kind on that. we're right bit something

Eric Hagen

you I homeowners Yes, that move Thanks underwater? how been locations makes about speeds Thanks. incentivized And mean we prepayment to previously they've sense. then non-agency are how think that. should or for the do segment? in think refi if

David Lyle

prevailing the Lyle. our Obviously, bonds. prepays non-agency seasoning some not Yes, rates are be the given the issue, as Obviously seasoned nearly hey, of well Dave the on this just to is bonds, the going mortgage as CRT new as agency. sensitive on those to as

on does where you an position, because bring more a it's in more have not of were to recently think more do into down continue comes a huge alluded situation It buyers. position prices appreciate I able see of rate rate. So lot incentive they where equity to accelerated have of the a have been as they not matter a cases suppressed that somewhat buyers LTV in options. lot to. home been in as to Prepays we refi That buyers

prepay So bonds. that can speeds a on bit benefit discount

Eric Hagen

Yes. Maybe us really can a to-date color on Thanks be that. you give for book that little would value helpful? just quarter

Lee Phegley

been the guess, X% and as Yes. actually has most I occurred down January. – about that the last of of it really night mean that latest that mentioned of we – but I since as – end was of estimate, has

to the agencies So of start to weeks it’s last really widen. couple been seen

where of we So that’s are. kind

Jason Marshall

agencies And should pretty directional Yes. like be think I here.

X% we've see seen XXXs you’ll actually on widening kind at have as break we the continued them of [XXs] in probably sessions [ph] [XXs] several past and high but here. mortgage above if sell some, tighten so see hung around And a off XXX,

that I we'll year-to-date. that some of think be so we've some widening probably directional this stay level, you probably somewhat So of over buying. But we'll rate seen, recover short-term. the kind see decent if around We'll

Eric Hagen

Yes, That helpful. thanks for the color. was

Jason Marshall

Thanks.

Operator

Thank you.

Trevor JMP from of is Securities. question Cranston Next

Your open. line now is

Trevor Cranston

All right, thanks.

expected would inverse long the your have mentioned since spreads. taken down with the because also the you’ve prepared duration And you to some your year-end. you’d comment in relationship that guys rate You position, that with typically made remarks you exposure, run credit

Thanks. questions you asset can through year? hedges? composition around at additional gap the was couple can the exposure end since that. you second how in just say on reduced been elaborate So duration you of rate if the changes And your part, what end year One, then on or through it's the

John Anzalone

We kind to Sure. with hedges We’ve equity year-end. and future the around that reduced three or say through of XX year since duration. years empirical ended four swaps area. I'd XX

call I'd with we've for on relation duration. the spread yes, empirical going we that this last be reason, confident probably X Yes of is. and to Invesco now to were equity rates the part pretty X assets right Yes, from range So the that bound. kept throughout area in year, aside the were that

lot by So to preserving our establish range, of to patient within We duration book you're income value moves be rates drift.. delta and our we'll of kind based and where cases. in to not a hedging, view that try range of kind on allow –

out supply certainly, pricing hedging of we're think bit duration increase but and I more clearly some that value. stability some position kind we're so some broken tightening that kind start of that more. But could rates, is we higher of not them to why expectations. Yes, see and little profits a signs and this there to risk So up in but range of in here, And increase it's delta rate year. think book we've inflation that's

Trevor Cranston

Got it.

that since for of that comment say end quarter about the that's And if far you helpful. or if accrued point clarification values earnings just the number? X% second the a pure so question, year. that’s mark-to-market then the Can includes book the on of Okay, just declined

John Anzalone

That’s number. clean just a mark-to-market

Trevor Cranston

Gotcha.

Okay. you. Thank

John Anzalone

Thanks. are there Mark, question further any see? you that

Operator

on no [Operator show We questions Instructions] further you. queue. Thank

John Anzalone

prepared no End Mark, Q&A close further if are the we call. of are there to questions,

Operator

No additional questions on queue speakers.

John Anzalone

everyone there we Well, that way. along Okay. certainly if might to your participating question we those happy and points want for call. and we’re thank the with of that appreciate And interest joining to follow-up help again, are you need, the clarity

everyone. Have Take again. great day, a thanks So care.

Operator

that Thank participation. for Thank today’s your conference. And concludes you all you.

disconnect. You may now

Invesco Mortgage Capital (IVR) 21 Feb 182017 Q4 Earnings call transcript